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INTRODUCTION

Greater speed, lower expense, expert decision, and confidentiality are the most
common reasons given for arbitration. Since commercial disputes are driven by
economic interest, the most logical settlement is by arbitration. This is to widen
the possibility of reconciliation and to keep the business relationship alive for both
parties. Arbitration is an amicable way forward through authoritative decision and
considered a contractual mechanism to resolve a momentary problem occurring
during business dealing with the assistance of a third party. Because of the
expansion of the global trade and investment, international dispute rises and every
business enterprises can find themselves entangled in legal proceedings with
foreign companies. Arbitration clauses have become virtually widespread in
international contracts to lessen the doubts associated in international commercial
disputes. International business operators favour international arbitration over
litigation because of its excellent neutrality, flexibility, and confidentiality. The
significant advantage of institutional arbitration is a certain measure of
convenience, security, and administrative effectiveness. Moreover, many believe
that institutional arbitration is more readily honoured by national courts than those
operating outside the formal institution.

SUBJECT MATTER OF THE DISSERTATION

As mentioned above, arbitration is an amicable way forward and a contractual


mechanism to resolve a transitory dispute in a business deal. However, not all arbitral
proceedings are effective in reconciling international dispute. Since there are two
major types of international commercial arbitration, ad hoc and arbitral institution, we
must take in account the advantages and disadvantages of each process. Whether or
not arbitral institutions are effective in settling international commercial disputes is
the issue that will be addressed in the subsequent chapters. As such, the document is
divided into three chapters.
• The first chapter will give us a background on arbitration and the rationale
why it has become the favoured dispute settlement approach of the
international business community. It will also discuss the swiftness and
efficiency of the arbitration process and its dissimilarities from local court
proceedings.
• The second chapter will give us the functions of arbitral institutions, the
rules of arbitral institution, and the public policy requirements of the law.
It will present a comparison between ad hoc and arbitral institution.
• Third chapter will give us the growth of international commercial
arbitration, and put forward the advantage and effectiveness of institutional
arbitration.

It was felt appropriate to restrict the research to ad hoc and arbitral institution
since our concentration is within international commercial arbitration.

1
CHAPTER I- INTERNATIONAL COMMERCIAL ARBITRATION

1.1 BACKGROUND: INTERNATIONAL COMMERCIAL ARBITRATION

The term “International” is used to define the difference between arbitrations


which are national or domestic and those which are transcend boundaries because
they involve more than one country.1 Whether the arbitration is international or not,
there are two reasons to the international nature of dispute or to the nationality or
residence of the parties.2 International trade which either through their nature or
through the fact that they involve their residents, nationals and corporations of
different countries are also included.3 International arbitration will have no connection
with state; accept that it is taking place on that country’s territory.4 ICC states that the
international nature of arbitration does not mean that the parties must necessarily be
of different nationalities.5 The wide interpretation of term “international” is also found
in French New Civil Procedure Code on international arbitration, in its article 1492
provides that “an arbitration is international when it involves the interests of
international trade”.6

In civil law countries “commercial” is distinguished between contracts which are


commercial and those that are not commercial. Commercial contract in wide term are
contract made by merchants or traders for the purpose of their business whether their
business is to buy or sell.7 There is no universal definition exists for “commercial”,
the term has significance for international arbitration because under the laws of some
countries only “commercial” disputes can be submitted to arbitration, a fact which is
recognised by the international conventions such as the Geneva Protocol of 1923 and
New York Convention 1958 to not arbitrate such disputes of such states which are not
regarded as commercial under their laws.8 Commercial term has now become the
language. It serves to distinguish international arbitrations concerning business or
trade disputes from international arbitrations between different countries over
boundary disputes and other political issues. In England commercial court that deals
only disputes which arises from trading and other commercial relationships.9

1
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration, 3rd edn,
Published by Sweet & Maxwell, 1999, P. 12
2
C. Buhring-Uhle, L. Kirchhoff and G. Scherer, Arbitration and Mediation in International Business,
Published by Kluwer Law International. 2006, p.34
3
Ibid.
4
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration, 3rd edn,
Published by Sweet & Maxwell, 1999, P. 12
5
The International Solution to International Business Disputes - ICC Arbitration, ICC
Publications, no. 301, 1977, p.19
6
Chap. 12 of Swiss Private International Law Act
7
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration, 3rd edn,
Published by Sweet & Maxwell, 1999, P. 14
8
C. Buhring-Uhle, L. Kirchhoff and G. Scherer, Arbitration and Mediation in International Business,
Published by Kluwer Law International. 2006, p.34-35
9
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration, 3rd edn,
Published by Sweet & Maxwell, 1999, P. 14

2
Arbitration is the substitute authority to national courts, which are specifically
established by the state to use and uphold the law and determine all forms of dispute.
It is a disagreement resolution system of choice for organizations to international
contracts.10 Arbitration is straightforward means of dispute resolution: the courts are
no longer the place for international business. International commercial arbitration is
recognized, uniform enforceable and it’s fair.11 In arbitration procedural rules are
fewer and simpler than adjudication in court.12 It is a device whereby the resolution of
an issue, which of significance for two or more persons, is entrusted to one or more
other persons. The arbitrator or arbitrators who derived their authority from a private
agreement, not from the authorities of a State, and who are to carry on and decides the
case on the basis of such agreement.13 Arbitration is also the authority specified by the
parties in preference to national courts. However, the degree to which parties can refer
their argument to arbitration is unavoidably a matter to be regulated by the law. For
arbitration to be present and happen as expected there must be a regulatory structure,
which controls the legal significance and effectiveness of arbitration in a national and
international legal setting.14
“Arbitration proceedings are generally private”.15 “Arbitration is a creature of
contract”.16 When one party contests the authority to adjudicate at the commencement
of the process or at the end of the process, confidentiality of the arbitration may be
invaded because the litigation procedures will generally be exposed.17Arbitration is
contractual type of dispute resolution implemented by individuals, chosen directly or
indirectly by the parties. The contractual agreement must be generally recognized in
the sense that the parties’ authority can be given in a numerous ways and
subsequently.18 Arbitration as a concept is known in the mainstream of legal systems;
however, it does not at all times takes similar form in different countries.19
The prevalent observation that arbitration is the consequence of contract
between parties and not a public institution and it could not be linked to a specific
state is inaccurate, as the legislative provisions on arbitration are instituted amid the
statutory procedural provisions. This makes arbitration blend to the legal system to
which the said procedural provisions affect and assign it an explicit nationality. This
additionally established by the expression ‘foreign arbitral decision’ or a ‘foreign
10
R. Naimark and C. Drahozal Christopher. Towards A Science of International Arbitration. Published
by Kluwer Law International. 2005, p.3
11
C. Buhring-Uhle, L. Kirchhoff and G. Scherer, Arbitration and Mediation in International Business,
Published by Kluwer Law International. 2006, p. 29
12
Trippe S. Fried, Maintaining the Home Court Advantage: Forum Shopping and the Small Business
Client, 6 Transactions: Tenn. J. Bus. L. 419, 2005, p. 430
13
P. Fouchard, E. Gaillard, J. Savage, B. Goldman, Fouchard, Gaillard, Goldman on International
Commercial Arbitration, Published by Kluwer Law International, 1999, p. 9
14
J. Lew, L. Mistelis, and S. Kroll, Comparative International Commercial Arbitration, Published by
Kluwer Law International, 2003, p.17
15
S. Bennett, Arbitration: Essential Concepts. Published by ALM Publishing. 2002, p. 6
16
Mistellis Loukas and Lew Julian. Pervasive Problems in International Arbitration. Queen Mary and
Westfield College. University of London. Centre for Commercial Law Studies. Published by Kluwer
Law International. 2006, p.11
17
R. Naimark and C. Drahozal Christopher. Towards A Science of International Arbitration. Published
by Kluwer Law International. 2005, p.6
18
J. Poudret, S. Besson, S. Berti, A. Ponti Annette, Comparative Law of International Arbitration,
Published by Sweet & Maxwell, 2007, p. 3
19
M.R. Sammartano, International Arbitration Law and Practice: Law and Practice, Published by
Kluwer Law International, 2001, p.1

3
arbitral award’ being utilized together by national legislation and international
conventions.20 The growth in international trade led many countries to consider a
different forum of dispute resolution other than litigation. As the dilemma
surrounding international transactions can be diverse, there were difficulties
encountered that were not considered suitable to be litigated and, hence, litigation
soon became disputed as an appropriate forum to deal with international commercial
disputes. The major cause for disputes and disagreements amongst the contracting
parties, involved in international transactions, are the different commercial and legal
expectations, cultural approaches, political ramifications and geographic situations of
the parties. In addition, contract terms can be interpreted differently by the contracting
parties in different countries, thus, affecting their respective rights and obligations.
Furthermore, extraneous factors and human frailties were all considered to interfere
with contractual performance and, as such, these disparities paved the way for
countries to look beyond litigation.21
In Prima Paint Corp. v. Flood & Conklin Manufacturing Co22 the U.S. Supreme
Court held that arbitration agreements are irrevocable and enforceable under the FAA.
The Prima holding, in conjunction with increasing support from various entities, led
the United States to finally accede. In 1970, the New York Convention became part of
U.S. treaty and statutory law. United Kingdom did not accepted New Convention in
1958.23 United Kingdom accepted it in 1975 U.K. Arbitration Act 1975 but they
repealed it in 1996 when some problems arose in interpreting 1975 Arbitration Act.24
In Rosseel N.V. v. Oriental Commercial & Shipping Co25, the U.K Commercial Court
of the Queen’s Bench Division enforced a U.S. made award even though the
defendants argued that the plaintiffs had to first have a U.S. court confirm the award
before the plaintiffs could enforce it in England. The plaintiffs contracted to buy
barrels of oil from the defendants, but the defendants failed to perform the contract.
After the arbitration panel found in favour of the plaintiffs, the defendants appealed
the award. Then, the parties signed two joint stipulations stating that the parties had to
bring any proceedings to confirm or vacate the arbitral award in the U.S. District
Court for the Southern District of New York. The issue was whether the joint
stipulations changed the ordinary rule that an arbitral award is binding and continues
to bind unless a competent authority sets it aside. To satisfy their burden of proof that
the award was not yet binding, the defendants had to prove an agreement existed that
“deprived the award of its prima facie binding character.” Also, the English court
noted that under U.S. law, there is a difference between enforcing an award abroad
and confirming an award. Since the joint stipulations only addressed confirmation
proceedings, the court held that the defendants failed to prove that the non-binding
award defence applied in their case. The award was binding and final; thus, it was
enforceable under the New York Convention. The fact that the New York Convention

20
M.R. Sammartano, International Arbitration Law and Practice: Law and Practice, Published by
Kluwer Law International, 2001, p.1
21
Mistelis, L. ‘International Arbitration- Trends & Challenges’, p. 1, available at
http://www.adrmeda.org/romeconference07/materials/Arbitration%20-%20Trends%20and
%20Challenges.pdf,
22
[1967] 388 U.S. 395
23
Roy Goode, Insularity or Leadership? The Role of the United Kingdom in the Harmonisation of
Commercial Law, 50 INT’L & COMP. L.Q.751, 2001, p. 756
24
Jonathan Hill, Some Private International Law Aspects of the Arbitration Act 1996, 46 INT’L &
COMP. L.Q. 274, 1997, p. 306-07
25
[1991] 2 Lloyd’s Rep. 625, 628-29 (Q.B.D. Comm. Ct.) (Eng.).

4
abolished the need to obtain leave to enforce in the awarding country, which the
earlier Geneva Convention had required, supported the court’s holding.26

1.2 RATIONALE FOR SELECTING ARBITRATION

The rationale frequently given for arbitration is greater speed, lesser cost, a more
professional decision, and greater confidentiality. According to Sato, granted that
business-related disputes are propelled by economic interests and that the primary
concerns of the trader is to maintain the business relationship, the most credible
motive would be, to a certain extent, that arbitration should proffer the prospect of
settlement through concession and modification of the relationship for a better future.
A harmonious means forward assisted by a convincing decision. 27 Arbitration could
be considered an essential concerted channel as well as a contractual instrument to
resolve a momentary predicament occurring at some point in business dealing,
involving the support of a third party, as an extension of once impasse business
negotiation. Specifically, those business communities, which are involved, such as
association of foreign trade, often arrange their own arbitration institutions and
provide standard provisions on arbitration to be integrated into business contracts.
Such convergence could make arbitration more effectual by offering the proficiency
required for enhanced and more appropriate solutions. For that reason, party self-
sufficiency and efficacy are significant elements for businesspersons in selecting
arbitration as a method of dispute processing.28 Buchanan states:

“In the realm of international commercial transactions, arbitration has become


the preferred method of dispute resolution. Arbitration is preferred over
judicial methods of dispute resolution because the parties have considered
freedom and flexibility with regard to choice of arbitrators, location of the
arbitration, procedural rules for the arbitration and the substantive law that will
govern the relationship and rights of the parties”29.

As a consequence of the incomparable growth of global trade and investment,


International commercial disputes increase and business undertaking of every type
can find themselves entrapped in legal actions with foreign companies. Every so
often, before far-off and insensitive tribunals that expense of proceedings and cost of
losing are often sizeable.30 There are numerous grounds why similar disputes can have
substantially dissimilar conclusion in different fora. Procedural, choice of law,
substantive, and other legal rules diverge from one country to another. The nature,
proficiency, and veracity of tribunals also diverge significantly among various fora.

26
Ibid. p. 627-29
27
Y. Sato, Commercial Dispute Processing and Japan, Published by Kluwer Law International, 2001, p.
192
28
Ibid.
29
Buchanan, “Public Policy and International Commercial Arbitration” 26 Am. Bus. L.J., 1988, p. 511
30
G. Born, International Commercial Arbitration: Commentary and Materials, Published by Kluwer
Law International, 2001, p. 1

5
Other factor such as inconvenience, local favouritism, and language, may make a
specific forum much more sympathetic for one party than another. All these
disparities are typically more apparent across international borders than within
national political systems.31 On account of the significance of forum selection, parties
to international contracts habitually incorporate contractual dispute resolution
provisions in the agreements to extensively decrease the doubts intrinsic in
international commercial disputes and achieve a sizeable degree of genuine partisan
advantage.32 Arbitration clauses have turned into practically universal in international
business contracts and international contract arbitration has been rising rapidly. 33
International business operators choose international arbitration over litigation as it
persistently offers greater impartiality protection by preventing submission of the
dispute to the national courts of one the contracting company. Since privacy,
flexibility, and freedom rule international arbitration, the parties are allowed to shape
the arbitral procedure to their requirements, and to select the place and the language
of the arbitration.34
“Arbitration provides the disputants with a flexibility, which they can never obtain
in a court setting”.35 A lot of legal representative and clients consider that the
existence of an arbitration provision in an international contract offer some guarantee
that the contract will be executed in unity with its provisions as parties may be more
hesitant to arbitrate than to litigate in a unfamiliar state forum where one party would
have a home advantage.36 Consequently, in choosing to arbitrate an argument, drafters
of the provision must confirm that the arbitration result or awards will not be ignored
by the courts of the country in which a judgment may be enforced. Moreover,
predominantly in the international context, they must realize that resolutions of
dispute by institutional arbitration are to some extent more willingly respected by
national courts than those running outside the recognized institutions. The rules
regularly used within institutional arbitration are the rules of the United Nations
Commission on International Trade Law or UNCITRAL thus more countries
acknowledge the enforceability of international arbitration.37

1.3 THE ARBITRATION PROCESS

As a rule, as soon as the decision to commence arbitration has been taken, and the
suitable form of notice or request for arbitration has been served, the subsequent move
is to set up the arbitral tribunal.38 A national court of law is a permanent body to
which an application may be made at roughly any instant; conversely, an arbitral

31
Ibid.
32
G. Born, International Commercial Arbitration: Commentary and Materials, Published by Kluwer
Law International, 2001, p. 1
33
Scheiber Harry. The State and Freedom of Contract. Published by Stanford University Press. 1998,
p.294
34
H. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award. Published by
Kluwer Law International. 2002, p.1
35
N.L. Wallace, The Settlement of International Disputes: The Contribution of Australia. Published by
Martinus Nijhoff Publishers. 1998, p.83
36
American Bar Association, Model Asset Purchase Agreement: With Commentary. Committee on
Negotiated Acquisitions. Published by American Bar Association. 2001, p.259
37
Ibid.
38
A. Redfern, Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, p. 177

6
tribunal must be brought into existence before it can work out any authority over the
dispute and the parties. The distinction between the two is seen more plainly, when a
dispute has occurred, endeavours at settlement have failed, and one of the parties
come to a decision that the time has come to apply its legal rights. If the dispute is to
be taken to court, the process is straightforward as the claimant need only issue a writ,
file a complaint, or initiate whatever type of originating process is suitable to set the
mechanism of justice into operation.39
On the other hand, if the dispute is to be referred to arbitration, the applicant
cannot bring his argument before an arbitral tribunal or ask for any means of
assistance or other information from that tribunal until it has been created. It on
average takes time to set up an arbitral tribunal, predominantly if this has to be done
by agreement or if the appointment has to be approved by an arbitral institution. For
instance, under the ICC Rules, arbitrators who are nominated by the parties have to be
authorized in the appointments by the ICC’s Secretary General. Conversely, once the
decision to arbitrate has been completed, the arbitral tribunal should be selected
immediately.40
An arbitral tribunal created to resolve an international commercial arbitration
dispute function in a completely dissimilar context from a judge sitting in a state
court.41 Mostly, the judge sits in a legal setting that visibly outline the degree of his
authority and responsibility. He is normally given complete immunity relating to any
possible legal responsibility arising out of the conduct of his judicial function. His
authority and the degree, to which his decisions relative to jurisdiction may be
reviewed by an appellate court, are evidently established in the law overriding the
proceedings. This situation is dissimilar in arbitration explicitly in international
arbitration, where the authority, responsibilities, and control of an arbitral tribunal
occur from a multifaceted combination of the determination of the parties, the law
governing the arbitration agreement, the law of the place of arbitration, and the law of
the place where acknowledgment or enforcement of the award may be required. There
are some convenient considerations when seeking arbitration through arbitral tribunal.
An equilibrium must be struck between the restriction that may be imposed on
arbitrators who perform their tasks in a senseless or unacceptable manner, and the
similarly essential prerequisite that an arbitral tribunal should be able to carry out its
mission without persistently ‘looking over its shoulder’ in the fear of being contested
through legal method.42
On one observation, it may be contended that arbitrators should be given practically
boundless powers, in order to encourage swiftness and efficiency in the arbitral
process.43 Nonetheless, the needs of public policy, whether national or international
create some limitation essential to guarantee that the parties are not without
alternative if there is an unlawful behaviour on the part of an arbitral tribunal. A lone
judge positioned in a court of first instance is typically subject to regulation by an
appellate process. Even if the contemporary inclination is to permit decisions of
arbitral tribunals to go uncontested, so that they are in effect final and binding upon
the parties, the requirement for some control over the way in which these conclusions
39
A. Redfern, Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, p. 177
40
Ibid,
41
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration, Published
by Sweet & Maxwell, 1999, P. 277
42
A. Redfern, Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, pp. 233-234
43
Ibid.

7
are achieved is acknowledged by largely, if not all systems of law. Specifically, it is
considered significant to guarantee that an arbitral tribunal provide the parties an
impartial enquiry and that it resolves only matters within its capability, or control. The
standard and commonly effective system for the security of parties against
immoderation on the part of arbitral tribunals is contained in a framework for remedy
in opposition to the award itself. However, various national laws also allow an extra
level of control enforced more openly upon particular arbitrators. Accordingly,
arbitrators may be removed for specific form of unjust behaviour. This may be made
under the rules of an arbitral institutions, where applicable, or more generally under
the law overriding the arbitration itself, by an application to the courts of the country
in which the arbitration happen.44

CHAPTER II- INSTITUTIONAL ARBITRATION

44
A. Redfern, Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, pp. 233-234

8
2.1 ARBITRAL INSTITUTIONS

To a large extent this modern day reliance on the International arbitration process
would not have been possible without the pioneering work of world’s leading
arbitral institutions, encouraging enactment of modern arbitration legislation,
developing procedures and conduct of arbitral proceedings and conducting
programs to educate neutrals concerning proper arbitration practice.45 Arbitral
institution in addition ascertains the minimum criterion for arbitrators. In specific
branch, for example, it may be obligatory that the arbitrator have knowledge of
the trade to be a member of its panel of arbitrators. Arbitral institutions not only
lay down standards for who may be an arbitrator, they from time to time also offer
training services to help arbitrators in satisfying those qualifications and run a
system of qualifying assessment for arbitrators46. However, training courses for
arbitrators are not obtainable everywhere and the pool of persons who meet the
criteria for appointment as arbitrator predominantly in international arbitration are
however excessively small47. Several explanations can be offered in support of as
well as against either choice. Institutional arbitrations put forward their services to
the parties in a structured form by placing arbitration facilities at their disposal
and overseeing arbitration proceedings. There are pre-established rules of
procedure relating to the arrangement of arbitral tribunals and the challenge and
substitution of arbitrators. Institutional arbitral tribunals maintain panels of
experts, which the arbitrators may be selected. Pre-established rules and
procedural controls make it probable to prevent impediment and deal with several
other eventualities. Institutional tribunal is accountable in regulating business
dealings and practices and controlling the business ethics of the participants.
Derived from the tradition of institutional arbitral tribunals it is achievable to
forecast the likely result of a dispute; for that reason, such practices can be
considered in the preparation of contract clauses48. Arbitration institutions
according to Schafer et. al, may take the form of self-governing legal bodies, such
as non-profit organisations, whose act and rules create the infrastructure required
for them to perform the tasks. The arbitration rules of such institutions are
characterising by the reality that they include rules that harmonize the minimum
contents of an arbitration agreement. An additional feature is that if problems are
encountered in developing the arbitral tribunal, the arbitration institution will have
the authority to take the required steps. This is the case when a party fails to
comply with its duty to work together or when the parties are helpless to come to a
central agreement.49

Given that the parties themselves settle on the composition of the arbitral tribunal,
they may also authorize a third party to make the pertinent resolution when there
is no agreement. In ad hoc procedures, the parties must make contractual
arrangements or pursue the appropriate procedural law. They should also make
certain that the third party they have elected has the determination and the
45
Hollering, F, M, The Institutions Role in managing The Arbitration Process available at
www.wipo.int
46
P. SARCEVIC. Essays on International Commercial Arbitration, Published by BRILL, 1989, p. 70
47
P. SANDERS. Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, Published by Kluwer
Law International, 1999, p.9
48
P. SARCEVIC. Essays on International Commercial Arbitration, Published by BRILL, 1989, p.33
49
E. SCHAFER, H. VERBIST, and C. IMHOOS. ICC Arbitration in Practice, Published by Kluwer
Law International, 2004, p. 10

9
resources to take the needed decisions if required. This calls for substantial effort,
which elucidate why parties normally evade such arrangements50.

A small number of arbitration institutions restrict themselves to offering support


in relation with the selection and substitution of arbitrators. Customarily, their
arbitration rules also include procedural rules intended for the arbitral tribunal.
The explanation for this according to Schafer et. al, is that the provisions in
national laws relating to arbitration are for the most part intended for the courts.
The small number of provisions that correlate to procedure before arbitral
tribunals will have a stand-in role, unless they convey fundamental principles of
procedure. In addition, agreed that the seat in international cases will very often be
in a third country foreign to the parties and the arbitrators, it is advantageous to
maintain the procedure before the arbitral tribunal different from national
procedure law. Explicit rules will for that reason essential and justifiably, parties
choose for a set of impartial rules made accessible by an arbitration institution51.
In a well-conducted international commercial arbitration, management of the
proceedings moves efficiently from the parties to the arbitral tribunal. In the
beginning, the parties are completely in control. They alone know the matter in
dispute, how they intend to set about establishing the facts upon which they place
confidence and the arguments of law they propose to submit. The case, which is to
be put to the arbitral tribunals, is their case. Certainly, the arbitral tribunal owes its
very existence to the parties. While the proceeding extends, however, the arbitral
tribunal becomes progressively more accustomed with the issue in dispute. It
starts to decide for itself, which evidence it consider as applicable and which
questions of law it regards as essential. It is a situation to begin making known it
observation as to how the case should be presented within the framework of the
specific rules which preside over the proceedings, whether these are ad hoc or the
rules of an arbitral institution. The balance of power, in effect, transfers from the
parties to the arbitral tribunal. It is correct that this should be so. The arbitrators,
not the parties, are the ultimate judges of the issues in dispute. However, this
transfer in the balance of power only occurs if the arbitrators themselves recognize
when and how to take control of the proceedings, and in particular, if they know
the collection of weapons their status puts at their control52.
As soon as the party has settled on in favour of institutional arbitration, it must
choose which institutions, predominantly fashioned along regional or industry
lines. Many of the new regional institutions are aimed at improving the eminence
of the city or region in question as a heart for commerce more willingly than
concentrating on any real business requirements and as a result have frequently
strive to institute a viable caseload. This generates a vicious circle; parties do not
add arbitration clauses providing for arbitration under new institution’s rules
because of the non-existence of realistic experience or fear of the institution’s lack
of stability. Consequently, the institution is unable to obtain the useful experience
and viability required to guarantee its durability. Therefore, a small number of
new institutions have obtained the significant mass required to assure their future

50
E. SCHAFER, H. VERBIST, and C. IMHOOS. ICC Arbitration in Practice, Published by Kluwer
Law International, 2004, p. 10
51
E. SCHAFER, H. VERBIST, and C. IMHOOS. ICC Arbitration in Practice, Published by Kluwer
Law International, 2004, p. 10
52
A. REDFERN. Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, p. 235

10
or to implant adequate peace of mind for the contract negotiator to refer to their
rules. There are three principal arbitration institutions, which have obtained an
authentically international profession. The International Court of Arbitration of
the ICC that is based in Paris, the LCIA that is based in London, and the American
Arbitration Association in New York. Reference to the rules of these institutions
in the arbitration clause satisfies the need to ensure the permanence of the
institution53.
According to Lynch, there are more than 180 institutions that can be regarded as
active in the area of international arbitration and there has been incredible increase
in the number of arbitral institutions engaged in the administration and
supervision of international arbitration. A few are national institutions located
within a single state that may be linked to a national chamber of commerce, such
as the ICC Court of Arbitration in Paris and the Arbitration Institute of the
Stockholm Chamber of Commerce. There are also self-governing arbitral
institutions, such as the LCIA that are created at the national level and assemble
arbitral specialist from legal and professional fields. Other instances are arbitral
institutions connected to the commodities markets or trade associations such as
arbitral institutions specializing in maritime disputes like the London Maritime
Arbitration Association, Paris Maritime Arbitration Chamber, or the Japan
Shipping Exchange. Many newer arbitral institutions, such as the Singapore
International Arbitration Centre, have been established explicitly for international
arbitrations. Some international arbitral institutions are bilateral, while others such
as the Kula Lumpur Regional Arbitration Centre and the Cairo Regional Centre
for International Arbitration have a much broader regional scope54.

2.2 RULES OF ARBITRATION AND PUBLIC POLICY REQUIREMENTS


OF THE LAW

An international arbitration may be conducted in many different ways. There are


not fixed rules of procedure. Rules of arbitration frequently offer an outline of the
variety of steps to be taken but the comprehensive rules of the procedure to be
followed are instituted either by agreement of the parties or by instructions from
the tribunal or a fusion of both. The one thing that is certain is that counsel should
not bring the rule of books from their home courts with them. An arbitral tribunal
must carry out the arbitration in harmony with the realistic requirements of the
parties. If it fails to do so, the award may be reserved or refused recognition and
enforcement. However, the autonomy of the parties to determine the procedure to
be followed in arbitration is not very open. The process they create must conform
to any binding rules and public policy requirements of the law of the place of
arbitration55.

It must also consider those provisions of the international conventions on


arbitration that intend to guarantee that arbitral proceedings are conducted
reasonably. If this is not done, then again the award may be set aside or refused
recognition and enforcement. Institutional arbitration according to Hewitt is being
53
J. PAULSSON, N. RAWDING, L. REED, and E. SCHWARTZ. The Freshfields Guide to
Arbitration and ADR: Clauses in International Contracts, Published by Kluwer Law International,
1999, p. 52
54
K. LYNCH. The Forces of Economic Globalization: Challenges to the Regime of International
Commercial Arbitration, Published by Kluwer Law International, 2003, p. 108
55
I. HEWITT. Joint Ventures, Published by Sweet & Maxwell, 2005, p. 305

11
conducted under the sponsorship of an international arbitral institution, which to a
greater or lesser degree carries out a managerial and supportive role in the
arbitration proceedings that is being governed by the rules of the chosen
institution56. By providing a ready-made mechanism and supplying the applicable
rules, institutional arbitration has the advantage of doing a great deal of the
parties’ work for them. A potentially even greater advantage is the either because
of the pressure of community interest and the prestige of the institution concerned,
or because of legal safeguards, the risk of recalcitrant parties is diminished. This is
important especially in cases in which the complaining party relies on a
‘compromissory’ clause, but is by no means to be disregarded in the case of a
‘compromis’ concluded after the dispute has arisen57. International arbitration is
extremely appropriate for settling negligible disputes, though it has also been used
to reconcile many significant and in some cases seemingly obstinate disputes58. As
mentioned earlier, there is a balance to be struck between the parties’ views on the
procedure to be followed and any overriding requirement of the applicable law59.

2.3 AD HOC V INSTITUTIONAL ARBITRATION

There are two major type of international arbitration- ad hoc and institutional
arbitration. Institutional arbitration entails the existence of a stable institution that
control arbitration procedures whereas ad hoc arbitration are designed to be self-
executing or all the rules for arbitration is supplied by the arbitration clause or
agreement.60 A definition of ad hoc arbitration, provided by Hope H. Camp Jr., is
that
“in its purest sense is a complete agreement between the parties with
respect to all aspects of the arbitration, including the law which will be
applied, the rules under which the arbitration will be carried out, the
method for the selection of the arbitrator, the place where the
arbitration will be held, the language, and finally, and most
importantly, the scope and issues to be resolved by means of
arbitration”61.
One of the many long debated issues in the arbitration field is whether ad hoc
arbitration is more effective that administered arbitration. As a result, analysis has
been spoken from every dissimilar angle. In the midst of the advantages of ad hoc
arbitration, cost and speed have been mentioned. Ad hoc arbitration is largely
preferred where the parties are unable to concur on the arbitration institution or
when one party is a state or state-entity or ‘parastatal’62. A good example
according to Bardonnet is the Aramco arbitration or the Saudi Arabia v Arabian
56
I. HEWITT. Joint Ventures, Published by Sweet & Maxwell, 2005, p. 305
57
A. BROCHES. Selected Essays: World Bank, ICSID, and Other Subjects of Public and Private
International Law, Published by Martinus Nijhoff Publishers, 1995, p.240
58
N.L. WALLACE. The Settlement of International Disputes: The Contribution of Australia.
Published by Martinus Nijhoff Publishers. 1998, p.83
59
M. HUNTER, A. Redfern, N. Blackaby , and C. Partasides. Law and Practice of International
Commercial Arbitration, Published by Sweet & Maxwell, 2004, p.264
60
M. Kerf, Concessions for Infrastructure: A Guide to Their Design and Award. World Bank. Published
by World Bank Publications. 1998, p. 62
61
Hope H. Camp Jr. Binding Arbitration: A Preferred Alternative for Resolving Commercial Disputes
Between Mexican and U.S. Businessmen Saint Mary’s Law Journal 1991
62
J. LEW, L. MISTELIS, and S. KROLL. Comparative International Commercial Arbitration,
Published by Kluwer Law International, 2003, p.35

12
American Oil Company63 and the two Libyan oil arbitrations Texaco Overseas
Pertroleum Company and California Asiatic Oil Company v Government of
Libya64; Libyan American Oil Company v Libyan Arab Republic65. It is definitely
correct that in ad hoc arbitration one saves the fees of the arbitral institutions.
However, this additional cost will have to be compared with the quality of service,
which such organization affords. In terms of speed, ad hoc arbitration may be
quicker provided it does not get involved in long ‘terms of reference’ deliberation
and if the arbitrators are enthusiastic to carry on swiftly. 66 The involvement of
arbitral institutions likely to add one channel to exchange of correspondence
separately from the scrutiny of the award, which is distinctive of ICC. At a
distance from that, it is submitted that one cannot say that the existence of an
arbitral institution impedes the proceedings. An additional advantage attributed to
ad hoc arbitration is flexibility as proceedings may be shaped to meet the desires
of the parties. However, it could be contend against this that even arbitrators
appointed by an arbitral institution benefit from the massive amount of flexibility,
since in many situations the arbitration rules of the body are not too detailed and
stringent. A disadvantage of ad hoc arbitration was the absence of a set of
arbitration rules. This is the reason why UNCITRAL filled this gap and made a set
of rules available for ad hoc proceedings. It is suggested that the main advantages
of administered arbitration are the administration of the proceedings and the
selection of the arbitrators. This subsequent advantage may have to be qualified,
whenever the choice available to a given body is not wide or is restricted by non-
objective criteria. The European Court of Arbitration has advocated the
importance of helping the parties to select the arbitrators in a preliminary
conference, confining its task to suggesting if needed to the parties potential
appointees rather than appointing someone who might differ from the expectation
not only of one party but occasionally all of them67.
The distinction between institutional and ad hoc arbitration Poudret et. al
explains results from arbitral practice. Although it is an important one, it is rarely
made in the national arbitration laws. Institutional arbitration takes place under the
auspices of an arbitral institution pursuant to latter’s rules68. Institutional
arbitrations are guided by the rules of the particular institution69. On the contrary,
ad hoc arbitration does not depend on an arbitral institution.

Ad hoc arbitration is based directly on the arbitration act applicable at the seat
of the tribunal, and such act will normally contain the relevant provisions
regarding the determination of the applicable law70. It is conducted following the
procedural rules specially drafted or adopted by the parties or the arbitrators.

63
[195]) 27 ILR 117
64
[1979] 53 ILR 389
65
[1982] 62 ILR 140
66
D. BARDONNET. Le reglement pacifique des differends internationaux en Europe, Academie de
Droit Interna, Workshop, Hague Academy of International Law, Published by Martinus Nijhoff
Publishers, 1988, p. 287
67
M.R. SAMMARTANO. International Arbitration Law and Practice: Law and Practice, Published
by Kluwer Law International, 2001, p. 365
68
J.F. POUDRET, S. BESSON, S. BERTI, A. PONTI. Comparative Law of International Arbitration,
Published by Sweet & Maxwell, 2007, p.68
69
J. FRICK. Arbitration and Complex International Contracts, Published by Kluwer Law
International, 2001, p. 52
70
Ibid, p. 53

13
Theoretically, there is no reason why an ad hoc arbitration could not be conducted
under the rules of an arbitral institution, but this is not advisable because such
rules are usually devised to be used within an institutional network. The respective
advantages and disadvantages of ad hoc and institutional arbitration are difficult
to evaluate for a number of reasons. First, the confidential nature of arbitration
prevents any real comparisons. Statistics similar to those published by certain
institutions, the reliability of which has sometimes been questioned are not
available for ad hoc arbitration. In terms of quality, it has been observed, in our
opinion too severely, that the fervour for institutional arbitration is often that of
‘employees of centres or organisms whose public relations it is their task to
manage, as well as those of candidates for arbitration, legitimately keen to gain
the favour of these organizations71.
Institutional arbitration according to Fouchard et. al, plays a dominant role in
international arbitral practice. Given that ad hoc arbitration inevitable remains
confidential, a statistical assessment of the respective important of these two
forms of arbitration is impossible72. Nevertheless, it is clear that over the pat years,
the well-established arbitral institutions have witnessed a significant growth in
their activity, and a number of new arbitral institutions have opened for business.
It is true that many of the new institutions have yet to have a substantial impact on
the international commercial arbitration market, and that many may never do so.
However, not all of them will fail and, often located in countries, which have yet
to develop a strong practice or tradition of international arbitration, they bear
witness to the rise of international arbitration, particularly in its institutional
form73. International commercial arbitration has grown and expanded with the
growth of international business, arbitral institutions have grown and changed.
Moses explains that even the American Arbitration Association has created an
international division, the International Centre for Dispute Resolution or ICDR to
deal with international disputes. Many arbitral institutions have updated their rules
to present an international arbitration-friendly format, and to improve their ability
to deal with certain issues, so that court assistance will not be needed as often. For
instance, the ICDR has added a rule that improves the institution’s ability to
respond promptly to a claimant’s need for emergency relief, which may occur
even before the tribunal has been formed. If emergency relief is not accessible in
some form at an early stage, a party has no choice but to seek relief from a court.
Institutions vary in cost and quality of administration. Many companies prefer to
work with the older, better-established institutions, even if the cost my be
somewhat higher. Parties are concerned that if they go with brand new arbitral
institutions, that institution might not be in business a few years down the road
when a dispute might arise74.

Parties must decide whether their arbitration will be conducted within the
supervisory and supporting apparatus of an arbitral institution. Lew and Paulsson
explain that parties that elect institutional arbitration obtain the benefits of

71
J.F. POUDRET, S. BESSON, S. BERTI, A. PONTI. Comparative Law of International Arbitration,
Published by Sweet & Maxwell, 2007, p.68
72
P. FOUCHARD, E. GAILLARD, J. SAVAGE, B. GOLDMAN. Fouchard, Gaillard, Goldman on
International Commercial Arbitration, Published by Kluwer Law International, 1999, p. 158
73
Ibid,
74
M. MOSES Margaret. The Principles and Practice of International Commercial Arbitration,
Published by Cambridge University Press, 2008, p. 10

14
established facilities, experienced staff, and administrative support. The major
arbitral offer tested procedural rules and, in most cases, rosters of qualified
arbitrators from which the parties may select75. Parties that do not use arbitral
institutions, but instead choose ad hoc arbitration, must make their own
arrangements for procedures, the selection of arbitrators, and administrative
support. By doing so, they are better able to control the procedural and
administrative aspects of the proceedings and their cost76. However, as
emphasized earlier, it is difficult to draw any general conclusion about the
suitability of ad hoc or institutional arbitration. It however may be advisable to
avoid ad hoc arbitration if there are significant cultural difference between the
parties, or if it is likely that the parties will not cooperate with each other in the
event of a dispute. Ad hoc, Kaufmann et. al, further explain may also prove to be
inappropriate when there are state parties involved. Indeed, in such cases, the
support provided by an arbitral institution may be essential. Since ad hoc arbitral
proceedings are independent of all institutions, the parties have the maximum
degree of flexibility to specify different aspects of the arbitral procedure, subject
to mandatory law at the seat of the arbitration77. For instance, the parties may
determine how the arbitrators are to appointed, how many arbitrators there should
be, the procedure to be followed, the timetable for arbitration and any other
special requirements they deem appropriate, having regard to the specific
characteristics of the contract in dispute. In practice, however, such broad freedom
may sometimes prove difficult to manage78.
Accordingly, all parties may choose to subject their ad hoc arbitration
agreement to existing arbitration rules dealing with all or most of these issues. For
instance, the UNCITRAL Rules, which are specifically intended for use in ad hoc
arbitration proceedings, constitute a convenient way for parties to make certain
that future arbitral proceedings are adequately regulated, without spending
excessive time drafting the arbitration clause and running the risk of creating an
arbitration system that proves unworkable once a dispute has arisen. The apparent
advantage sometimes proffered is that ad hoc arbitration is faster as it avoids
redundancies and delays supposedly encountered in institutional arbitration.
However, this is far from being certain in practice because in some cases, the
assistance of the arbitral institution may facilitate the resolution of difficulties
arising during the course of the proceedings, which can prove time-consuming in
ad hoc arbitration particularly when the parties are required to apply to court.
Furthermore, the time limits for the early stages of the proceedings like the
appointment of arbitrators set fourth in the rules of the main arbitral institutions
ensure that the arbitration is put in motion without unnecessary delay, which is not
always the case with ad hoc arbitration79.

75
J. LEW. Contemporary Problems in International Arbitration, Published by Brill Archive, 1987,
p.300
76
J. PAULSSON, N. RAWDING, L. REED, and E. SCHWARTZ., The Freshfields Guide to
Arbitration and ADR: Clauses in International Contracts, Published by Kluwer Law International,
1999, p.51
77
G. KAUFMANN, KOHLER, and B. STUCKI. International Arbitration in Switzerland: A
Handbook for Practitioners, Published by Kluwer Law International, 2004, p. 7
78
Ibid,
79
G. KAUFMANN, KOHLER, and B. STUCKI. International Arbitration in Switzerland: A
Handbook for Practitioners, Published by Kluwer Law International, 2004, p. 7

15
Ad hoc arbitrations may be viewed as more confidential. Indeed, since less
people are involved as not administrative support by employees of an arbitral
institution and no scrutiny of the award by members of an arbitration court. In
practice, this advantage should not be overestimated. Indeed, breaches of
confidentiality obligations are often attributable to the parties themselves and not
to the institution. Moreover, parties often consider that ad hoc arbitration is less
expensive. In fact, the cost of arbitral proceedings depends upon several factors,
such as the specificity of the case, the method, and rate adopted by the arbitral
institution or the ad hoc arbitral tribunal to charge for its services. As we
mentioned earlier, the assistance of an arbitral institution may increase the
efficiency of the proceedings and lead to significant cost reductions, which may
offset the administrative costs of the institution80.
The principal disadvantage of ad hoc arbitration is that, in practice, its
effectiveness depends upon cooperation between the parties once the dispute has
arisen and the assistance that courts at the seat of the arbitration may provide if
necessary. This is particularly true if the arbitration agreement is not well drafted
and difficult to interpret and implement. Consequently, parties may face
unexpected costs and delays to resolve such problems, which may only come to
light when one of them seeks to commence the arbitration or during the course of
the arbitration. This situation may become even worse if the parties have not
determined the seat of the arbitration before the dispute arises or when the
competent courts are not arbitration friendly. In such situation, if a party decides
at the start of the dispute to take advantage of each and every weakness in the
arbitration agreement to delay the proceedings, the constitution of the arbitral
tribunal may alone take many months. Moreover, the lack of institutional support
increases the scope of administrative tasks that must be performed by the arbitral
tribunal itself. The appointment of an administrative secretary to a certain extent
may mitigate this difficulty. As a result, the costs that may be saved by not
involving an arbitral institution can prove illusory in the light of the additional
delays that may be encountered in constituting the arbitral tribunal, the potential
costs of obtaining assistance from courts if faced with recalcitrant party and the
arbitral tribunal’s additional administrative burdens81.
An advantage of institutional arbitration Moskin maintains is that by choosing
arbitration under an established set of institutional rules, the parties incorporate in
their arbitration agreement a set of tested arbitration rules82. Perhaps according to
Uhle, the most significant advantage of institutional arbitration is a certain
measure of convenience, security, and administrative effectiveness. Before a
dispute has arisen, it is generally very difficult to ascertain what the exact nature
of the dispute will be, the kind of procedure will be most appropriate,
contingencies will have to be taken into account, and whether both sides will
cooperate to get the matter resolved83.

80
G. KAUFMANN, KOHLER, and B. STUCKI. International Arbitration in Switzerland: A
Handbook for Practitioners, Published by Kluwer Law International, 2004, p. 8
81
Ibid,
82
M. MOSKIN. Commercial Contracts: Strategies for Drafting and Negotiating. Published by Aspen
Publishers Online. 2002, p.5
83
C.B. UHLE, L. KIRCHHOFF, and G. SCHERER. Arbitration and Mediation in International
Business: Second Edition, Published by Kluwer Law International, 2006, p.36

16
Negotiating and drafting an arbitration clause that covers all these
considerations is a difficult, time-consuming, and costly exercise, the use of
recognise model arbitration rules ensures that the process will take place, that it
will be reasonably fair and efficient, that it will lead to a decision, and that this
decision will be enforceable. Another very important advantage he added is that
the prestige and the record of accomplishment of institution strengthen the
credibility of awards and thus facilitates both voluntary compliance and
enforcement. In the case of ICC arbitration, confirmation of the terms of reference
and scrutiny of the draft award further enhance this credibility because a court
deciding over the validity or enforceability of the award will have the assurance
that a neutral and competent authority has supervised the procedure and has
certified the existence of a prima facie agreement to arbitrate. In addition, the
procedure complied with the rules, and was therefore in accordance with the
agreement of the parties84.
Generally, whatever type of arbitration is chosen, the parties must seek to
ensure that it will be possible to constitute an arbitral tribunal and conduct the
arbitral proceedings as smoothly as possible, even if one party proves to be
obstinate once a dispute has arisen. In order, to achieve this result, the parties must
understand the consequences of their choices when concluding the arbitration
agreement. The drafting of the arbitration agreement is much more crucial in ad
hoc that in institutional arbitration, where the best solution is to adopt the model
clause proposed by the selected institution. Therefore, when opting for
institutional arbitration, the parties should focus on choosing the most appropriate
institution in order to ensure that the applicable rules will correspond to their
expectation in the event of a dispute85.

2.4 ICC AND OTHER ARBITRAL INSTITUTION

Different arbitral institution offer somewhat different products. According to


Born, the ICC, LCIA, and the AAA are presently the leading international arbitral
institutions. The ICC or the International Court of Arbitration was established in
Paris in 1923 and remains the world’s leading international commercial arbitration
institution. It has less of a national character than any other arbitral institutions
and its annual caseload was well above 300 cases per year during the 1980s and
early 1990s. Currently, ICC caseload exceeds 500 cases per year and most of
these cases are international disputes involving very substantial sums. The ICC’s
caseload involves parties from around the world, with Western European parties
being involved in less than 50% of all ICC case in recent years. The ICC has
promulgated the ICC Rules of Arbitration, which were revised in 1998, as well as
the ICC Rules of Optional Conciliation. ICC is extensively involved in the
administration of individual arbitrators. Among other things, the ICC is
responsible for service of the Request for Arbitration and other preliminary
submission on the parties. This includes fixing and receiving payment of advances
on costs by the parties at the outset of arbitration, confirming the parties’
nominations of arbitrators, appointing arbitrators if a party defaults or if the
84
C.B. UHLE, L. KIRCHHOFF, and G. SCHERER. Arbitration and Mediation in International
Business: Second Edition, Published by Kluwer Law International, 2006, p.36
85
G. KAUFMANN, KOHLER, and B. STUCKI. International Arbitration in Switzerland: A
Handbook for Practitioners, Published by Kluwer Law International, 2004, p. 14

17
parties are unable to agree upon a presiding arbitrator or sole arbitrator86. Many
foreign investment disputes have been brought before ICC arbitral tribunals since
it is best known in the world for handling international commercial arbitration.
Many governments and government-owned companies have consented in
international contracts to arbitration under the ICC Arbitration Rules that may
involve foreign investment claims as well as ordinary commercial issues87.
Institutions have been rallying hard to achieve worldwide enforceability of
arbitration awards as it makes arbitration more attractive and option than litigation
thus resulting in more work for the institutions. It is widely believed that modern
day reliance on the international arbitration process would not have been possible
without the pioneering work undertaken by most of the arbitral institutions.
Institutions like the ICC International Court of Arbitration, the London Court of
International Arbitration, the American Arbitration Association, and others around
the globe are mainly responsible for the advancement and success of international
arbitration. From the early beginning these institutions devoted their energies to
promoting the use of international arbitration. As such, ‘these institutions played
an influential role in the enactment of modern arbitration legislation, developed
procedures for the conduct of arbitral proceedings and conducted programs to
educate neutrals concerning proper arbitration practise’.88 Moreover, these
institutions were well aware that promoting globalisation alongside international
arbitration was the key to achieving their objective. Integrated markets will lead to
an increase in trade and this, in turn, is likely to increase the practice of
international arbitration.89 Furthermore, these institutions through sheer hard work
have not only succeeded in pioneering the geographical reach of international
commercial arbitration but have also considerably expanded the domain of issues
that are arbitrated.90

The advantage that the arbitral institutions and international bodies have to offer,
compared to professional societies and trade associations, is their day-to-day
involvement in international arbitration. They know the qualities required in the
persons they appoint and they usually know the potential candidates91. According
to Moses, arbitral institutions performs important administrative functions and
ensures that arbitrators are appointed in a timely manner, moves along in a
reasonable manner, and the fees and expenses are paid in advance. 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 well-known institution may have more credibility in the international
community and the courts. This may encourage the losing party not to challenge
an award92.

86
G. BORN. International Commercial Arbitration: Commentary and Materials, Published by Kluwer
Law International, 2001, p. 13
87
J. C. BISHOP and M. REISMAN. Foreign Investment Disputes: Cases, Materials and Commentary,
Published by Kluwer Law International, 2005, p. 13
88
Hoellering, M.F. ‘The Institution’s Role in managing the Arbitration Process,’ March (1994),
available at http://www.wipo.int/amc/en/events/conferences/1994/hoellering.html,
89
Thirgood, R. ‘International Arbitration: The Justice Business’ Journal of Int’ Arbitration, (2004),
21(4), pgs 341- 354, p. 344- 345.
90
Ibid.
91
A. REDFERN. Law and Practice of International Commercial Arbitration, Published by Sweet &
Maxwell, 2004, p. 188

18
An arbitral institution are usually established at a multilateral level and are thereby
better equipped to deal with the international particularities of an investment
dispute that arbitral proceedings administered solely by the parties. Furthermore,
although arbitral awards are generally characterized by high enforcement
statistics, it is sometimes perceived that an arbitral award that is handed down
within the scope of an institutional system is more likely to be in accordance with
the general principles of procedural fairness. Consequently, this should lead to a
higher likelihood of that award being enforced by domestic courts if enforcement
proceedings become necessary93.
It would be ideal if all the parties participating in arbitration were to agree upon
the same arbitrator or upon the same panel of arbitrators. Voskuil explains that
difficulties arise when each party has the right to appoint its own arbitrator. In
multiparty arbitration, this can result in a mammoth arbitration with all the
consequences, which such arbitration can produce. It has been suggested that the
best solution would be to authorize a certain body like an arbitral institution to
appoint the arbitrators instead of the parties. This solution would entail
modification of the principle mentioned above, instead of the parties having the
right to choose their arbitrators in whom they have confidence; they would choose
an arbitration institution or other appointing authority in which they have
confidence. This would probably result in successive pushing back of the ad hoc
arbitration. It appears that institutional arbitration is more adequate to meet the
demands of modern times, especially as an answer to the problem of multiparty
arbitration. In short, all the main problems of multiparty arbitration can be
resolved in advance in the rules of the institutional arbitration94. However, it
would first be necessary to accommodate these rules to the new demands of the
times since at present the majority of them do not meet such demands95.

CHAPTER III –INTERNATIONAL COMMERCIAL ARBITRATION AND


EFFECTIVENESS OF INSTITUTIONAL ARBITRATION

3.1 THE GROWTH OF INTERNATIONAL COMMERCIAL ARBITRATION

92
M. MOSES Margaret. The Principles and Practice of International Commercial Arbitration,
Published by Cambridge University Press, 2008, p. 9
93
M. DIMSEY. The Resolution of International Investment Disputes, Published by Eleven
International Publishing, 2008, p.26
94
C.C. VOSKUIL and J.A. WADE. Hague-Zagreb Essays 5: On the Law of International Trade,
T.M.C. Asser Institute, Published by BRILL, 1985, p.135
95
Ibid,

19
Over the past years, international commercial arbitration has become a big legal
business, the accepted method for resolving international business disputes. Its
success according to Dezalay and Garth is reflected in the arbitration of high-
profile disputes such as those arising out of the nationalizations of oil concessions
in the 1970s and 1980s, huge international construction projects such as the tunnel
under the English Channel, and international incidents like the French sinking of
the Rainbow Warrior on its Greenpeace mission. Success is also evident in the
tremendous growth since the late 1970s in the number of arbitration centres,
arbitrators, and arbitrations96.
However, Grigera explains that the foregoing advantages attributed to arbitration
are neither absolute nor free from critical evaluation at both the national and
transactional levels. This is because experience shows particularly in the field of
international transactions, that arbitration is not necessarily a swift, quick, and
inexpensive means of dispute settlement. Particularly when any of the parties
raises obstacles to the setting up of the arbitral tribunal, to the progress of the
arbitral proceedings or to enforcement of the arbitral award, arbitration becomes
stagnant, or at least as long and wearisome as litigation before State courts97.

Opportunities for the exercise of procedural bad faith are within easy reach such
as abstention from participating in the arbitral proceedings, particularly in the
appointment of arbitrators. Moreover, the questioning of the existence and validity
of the arbitral agreement and of the jurisdiction of the arbitral tribunal, the abuse
of means for introducing appeals against the award or for setting it aside, and
opposition to the recognition or enforcement of the award before diverse national
jurisdictions. A conclusion logically ensuing from the matters already mentioned
is that arbitration is not necessarily a less expensive adjudicative process than
court adjudication. In the field of international commercial transactions, protracted
arbitral proceedings with multiple procedural chicaneries, probably involving
additional litigation in various State jurisdictions, will almost inevitably lead to
substantial expenses and economic burdens derived from the mere fact of delay,
uncertainty, and disruption of economic planning and of the commercial relation
of the parties98.
Though the foregoing consideration might suggest that all advantages usually
connected with arbitration are relative or can even be deceptive, the information
one receives from specialized publications or through daily practice indicates on
the other hand, particularly in the field of international commercial transaction,
that arbitration is increasingly popular. For some, it is called to play the role of a
truly autonomous international jurisdiction charges with the task of bringing to
light and applying the juristic principles and rules governing international
commercial transactions more or less independently of national legal orders99.
These seeming contradictions suggest that need to make some further effort to
explain the arbitration boom from the standpoint of the deeper reasons, which may
underlie the parties’ decision to have recourse to arbitration. There may be a more
general and decisive motive to explain the growing popularity of arbitral

96
Y. DEZALAY and B. GARTH. Dealing in Virtue: International Commercial Arbitration and the
Construction of a Transnational Legal Order, Published by University of Chicago Press, 1996, p. 6
97
H. GRIGERA. Choice-of-law Problems in International Commercial Arbitration, Published by
Mohr Siebeck, 1992, p. 21
98
Ibid,
99
Ibid, p. 22

20
adjudication as an extended phenomenon in the field of international commercial
transactions100.
For Bagheri, international commercial arbitration is vindicated by ideological and
dispute settlement cultures, which favour maximum autonomy and choice for
individuals. The flourishing enterprise of international commercial arbitration
symbolises an expanding and powerful commercial community that imposes it
norms on national legal systems. Nonetheless, as an additional limit of contractual
freedom, the growth of regulations of a public law nature has weakened that
momentum in favour of arbitration in dealing with contractual disputes of such
nature. The paradox is that whereas the promotion of arbitration has been
considered one of the priorities of the international community over the last few
decades, the ever-increasing role of economic regulations in private disputes is
likely to diminish the scope of the arbitrator’s jurisdiction101.
Arbitration, as the most common mode of resolution of private international
disputes, is a special context, which highlights the difficulties of drawing a clear
line between the realms of private law and economic regulations. Arbitration
symbolises the ultimate range of freedom of contract, whereas economic
regulations represent restraint and control. Arbitration puts into perspective the
possible shortcomings of conventional conflict rules and public international law
in dealing with the contractual peculiarities associated with national economic
regulation in an integrated global economy. However, national regulatory laws,
not matter how limited, often oppose private adjudication in certain regulatory
fields102.
The failure of an international contract on public law grounds, therefore, can even
go beyond the substantive failure and affect the contractual choice of the
adjudicatory body. In addition to substantive challenges, the validity of arbitration
agreements, and consequently, the jurisdiction of arbitrators could be challenged
on the ground of non arbitrability of disputes related to the regulatory laws. In a
regulatory context, the legal parameters of the dispute are seen as having been
created by the State for the collective benefit of its members. Indeed, the
vindications of the regulatory objectives, which are external to the parties, are so
significant that adjudication becomes a matter of public concern. The restrictions
on the arbitrability of regulatory disputes are precisely designed to reinforce the
implementation of regulatory objectives at the procedural level. Nowhere does the
dichotomy between private autonomy and the public interest as a conceptual
source of rights arise so sharply as in the context of contractual arbitration103.
The popularity of international arbitration according to Born reflects important
advantages as a means to resolve international disputes. However, despite these
advantages, international arbitration also has significant shortcomings104. First,
international arbitration is often perceived as ensuring a genuinely neutral
decision-maker in disputes between parties from different countries. International
disputes inevitably involve the risk of litigation before a national court of one of
the parties, which may be biased, parochial, or unattractive for some other reason.
100
Ibid,
101
M. BAGHERI. International Contracts and National Economic Regulation, Published by Kluwer
Law International, 2000, p. 4
102
M. BAGHERI. International Contracts and National Economic Regulation, Published by Kluwer
Law International, 2000, p. 4
103
Ibid,
104
G. BORN. International Commercial Arbitration: Commentary and Materials, Published by Kluwer
Law International, 2001, p. 8

21
Moreover, outside an unfortunately limited number of industrialised nations, local
court systems simply lack the competence, experience, resources, and traditions of
impartiality satisfactorily to resolve many international commercial disputes.
International arbitration offers a theoretically competent decision-maker
satisfactory to the parties, who are, in principle, independent of either party or any
national or international governmental authority105.
On the other hand, private arbitrators can have financial, personal, or professional
relations with one party. In the eyes of some observers, this poses the risk of even
greater partiality than the favouritism or parochialism of local courts. Second, a
carefully drafted arbitration clause generally permits the resolution of disputes
between the parties in a single forum pursuant to an agreement that most national
courts are bound by international treaty to enforce. This mitigates the expense and
uncertainty of multiple judicial proceedings in different national courts. On the
other hand, incomplete or otherwise defective arbitration clauses can result in
judicial and arbitral proceedings where the scope or enforceability of the
provision, as well as the merits of the parties’ dispute, must be litigated.
Moreover, even well drafted arbitration agreements cannot entirely exclude the
expense and delay of a litigant determined to confound the arbitral process106.
Third, arbitration agreements and arbitral awards generally are, but not always,
more easily and reliably enforced in foreign states than forum selection clauses or
foreign court judgements. The perceived ease of enforceability of arbitral awards
has contributed to substantial voluntary compliance with arbitral awards, although
there is little empirical data comparing such compliance with those applicable to
judicial judgements. In some developing and other countries, there has been a
perception that international commercial arbitration was developed by, and was
biased in favour of Western commercial interests. As a result, national law in
many countries was historically hostile towards international arbitration. In some
states, this remains the case today. Hostile or simply archaic national law can
therefore still pose significant obstacles to the effective enforcement of
international arbitration agreements and awards107.

3.2 THE ADVANTAGE AND EFFECTIVENESS OF INSTITUTIONAL


ARBITRATION

Statistics on the use of arbitration, whether domestic or international, are


seldom available108. However, it is clear that since World War II, there has been a
considerable increase in the use of arbitration in both fields. Where a new branch
of industry emerges, like the computer industry, it is arbitration which is resorted
to in view of the expertise needed for the resolution of disputes. In the
international field the growth of international trade, when the War was over,
contributed largely to an increase in the use of arbitration for resolving disputes
arising out of international commercial contracts. This increase was also due to
the appearance of the New York Convention in 1958. Compared with the
enforcement of a court decision, the enforcement of a foreign award has been
greatly facilitated by the appearance of this Convention. Arbitration, whether
105
Ibid,
106
G. BORN. International Commercial Arbitration: Commentary and Materials, Published by Kluwer
Law International, 2001, p. 8
107
Ibid,
108
P. SANDERS. Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, Published by Kluwer
Law International, 1999, p. 9

22
domestic or international, is mostly institutional arbitration. When parties insert an
arbitration clause in their contract referring to institutional arbitration, their
dispute will be resolved under a carefully drafted set of Arbitration Rules, which
regulate the arbitral process from the beginning to the end109.
According to Bunni, the continued use of the ICC Rules in the successive
editions of the Red Book (for the construction industry), including the 1996
Supplement and the 1999 suite of contracts, is an apparent indication of the
numerous advantages of these Rules. This observation is supported by the steady
annual increase in the number of ICC arbitration cases. These advantages which
have been commented on by many experience users includes administrative
support, procedure for the challenge to arbitrators, buffer between the parties and
the tribunal in respect of the financial arrangements obviating any possible
embarrassment, and the unique function of the ICC Court in its scrutiny of awards
that contributes to their enforceability110.
Schmitthoff and Cheng argue that those who have experience in the conduct of
arbitration will generally agree that institutional arbitration is superior to ad hoc
arbitration. Arbitration clauses are defective, and gaps in arbitration clauses can be
filled more speedily and efficiently if there is an institutional framework111. There
is no way of finding out exactly how many contracts stipulate recourse to ICC
arbitration since there is no compulsion to register such arbitration clauses. There
is evidence, however, to show that a good number of states, agencies or
institutions generally stipulate recourse to ICC arbitration in the event of any
disputes112. According to Lew et. al, every arbitration institution has its own
special characteristics. It is essential that parties are aware and consider these
since it is tied with an understanding of the special requirements of different
arbitration systems and rules. For instance, there are differences in the level of
administration of the institution. The ICC is heavily administered with the terms
of reference, fixing times for the making of the award and scrutiny procedures
being fundamental to the systems. On the other hand, after the appointment of the
tribunal, the LCIA limits its administration to dealing with challenges to the
arbitrators and to interceding to agree, collect and pays the fees of the
arbitrators113.
Naimark and Drahozal states that the number of international proceedings has
been increased significantly over the past decade. The vast majority of those
proceedings, at least in institutional arbitrations, result from pre-dispute
agreements to arbitrate114. This part considers why parties agree to arbitrate
international disputes. Commentators and literatures cite a variety of advantages
of arbitration, including the neutrality of the forum, the flexibility of procedure,

109
Ibid,
110
N. BUNNI. The FIDIC forms of contract: the fourth edition of the Red Book. International
Federation of Consulting Engineers. Published by Blackwell Publishing. 2005, p. 422
111
C. M. SCHMITTHOFF and C. CHENG. Clive M. Schmitthoff's Select Essays on International
Trade Law, Published by BRILL, 1998, p.628
112
D. A. IJALAYE. The Extension of Corporate Personality in International Law. Published by Brill
Archive. 1978 , p. 271 referring to Karl-Heinz Bockstiegel’s “Arbitration of Disputes Between States
and Private Enterprises in the International Chamber of Commerce”, 59 Am. J. Int. L. (1965) p. 579 at
p. 580)
113
J. LEW, L. MISTELIS, and S. KROLL. Comparative International Commercial Arbitration,
Published by Kluwer Law International, 2003, p.7
114
R. NAIMARK and C. DRAHOZAL. Towards A Science of International Arbitration. Published by
Kluwer Law International. 2005, p.19

23
and the enforceability of the award. However, according to the survey conducted
by Christian Buhring-Uhle as stated by Naimark and Drahozal, parties choose
arbitration as a response to the specific problems of litigating international
disputes in national courts rather than based on a desire to create a type of
procedure that is fundamentally different from litigation. The overwhelming
majority of the parties also ranked a ‘fair and just’ result as the most important
attribute, even above receipt of a monetary award, speed of outcome, cost, or
arbitrator expertise115.

Conclusion

Indisputably, arbitration offers greater speed, lesser cost, a more expert


decision, and privacy. It is almost certainly, the most logical settlement approach
as reconciliation and keeping the business relationship alive after a business
dispute is essential. The arbitral tribunal guided by the rules of the arbitral
institution perform the arbitration in harmony with the realistic requirements of
the parties in dispute. This is very important since recognition and enforcement of
115
R. NAIMARK and C. DRAHOZAL. Towards A Science of International Arbitration. Published by
Kluwer Law International. 2005, p.20 and p.44

24
the award is the heart of any arbitration. Institutional arbitration, predominantly in
international commercial dispute, is conducted under the auspices of international
arbitral institutions that carry out managerial and supportive role in the arbitration
proceedings. Institutional arbitration has a big advantage over ad hoc arbitration
because it has a ready-made mechanism and applicable rules for the parties in
dispute. The prestige of institution promotes confidence thus reduced the risk of
intractable parties. Moreover, it offers a theoretically competent decision-maker
who is in principle independent of any national or international governmental
authority.
Established at a multilateral level and better equipped to deal with the
international individuality of a business dispute, a decision coming from an
arbitral institution is more likely in accordance with the general principles of
procedural fairness. Thus, there is higher likelihood that decisions or award made
by these institutions are recognise and enforce by national courts. Parties using
institutional arbitration clause in the contract know that their dispute will be
resolved under an assiduously drafted set of Arbitration Rules that controls the
arbitral process from the beginning to end.

When parties insert an arbitration clause in their contract referring to


institutional arbitration, their dispute will be resolved under a carefully drafted set
of Arbitration Rules, which regulate the arbitral process from the beginning to the
end. There is a general agreement that institutional arbitration is superior to ad hoc
arbitration because a gap in arbitration clauses can be filled more quickly and
effectively if there is an institutional framework. The considerable increase in the
use of arbitral institution particularly ICC for resolving disputes arising out of
international commercial contracts indicate the effectiveness of these Rules. Many
who have experienced the services of ICC says that the administrative support,
superior arbitral procedures, and the unique function of its court in scrutiny of
awards contribute to their enforceability. Every arbitration institution has its own
unique features but the level of ICC administration is more preferable as ‘terms of
reference’, fixing times for the making of the award, and scrutiny procedures are
fundamental to the system. The apparent increase of international proceedings
where the vast majority of disputes are administered by arbitral institutions
suggests the usefulness of arbitration under an institutional framework. Finally,
the neutrality of the forum, enforceability of the award, and fair and just result
signifies the irrefutable effectiveness of institutional arbitration.

25