Arbitration is a voluntary process, which can be entered into only by means of an agreement between the parties to resolve their differences through this mechanism. Arbitration is widely used by commercial parties around the globe as a preferred alternative to court litigation. The reasons for this are many, as explained further below, and the increase in the numbers of disputes referred to the various arbitral institutions reflects the popularity of arbitration, with many major arbitration institutions reporting steady increases in case loads over the past few years, as further explained below.
Many jurisdictions have different sets of rules for international and domestic arbitrations. Domestic arbitrations are usually defined as arbitrations held in a particular jurisdiction which concern two or more parties from that same jurisdiction. In England and Wales, however, the Arbitration Act 1996 (the Arbitration Act) has largely removed this distinction for most purposes. Yet the distinction is still significant, even as regards England and Wales, because challenges to, and recognition and enforcement of international awards is governed by the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) (and other international conventions the UK is signatory to).
The principal international arbitration institutions are: the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the International Centre for Dispute Resolution (ICDR) (the international arm of the American Arbitration Association), the Stockholm Chamber of Commerce (SCC) and the Swiss Arbitration Association (SAA) in Europe; the American Arbitration Association (AAA) in the USA; the Dubai International Financial Centre (DIFC) (in a strategic partnership with the LCIA, with rules based on the LCIA rules) and the Dubai International Arbitration Centre (DIAC) in the Middle East; Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC) and China International Economic and Trade Arbitration Commission (CIETAC) in Asia. The institution most frequently used for the resolution of investment disputes is the International Centre for Settlement of Investment Disputes (ICSID). Many ad hoc arbitrations, both commercial and state-investor, are conducted using the United Nations Commission on International Trade Law (UNCITRAL) Rules, though UNCITRAL does not administer arbitrations.
There are also a number of important “specialist” arbitration organisations for specific types of disputes based in London, for example: the London Maritime Arbitrators Association (LMAA), whose members resolve maritime disputes and the Grain and Feed Trade Association (GAFTA), which provides an arbitration services to parties using GAFTA standard contracts.
Arbitrations can be “seated” in any jurisdiction chosen by the parties. This may be the same as the “home” of the institution whose rules have been selected by the parties. London, for example, is the base of the LCIA. However, parties can agree on an alternative “seat” of their choice under almost all arbitration rules. For example, although the ICC is based in Paris, ICC arbitrations are seated in many other countries. The juridical “seat” of an arbitration is important because, as explained below, it is relevant to the degree of court involvement in the arbitration and to the permitted grounds of challenge to an award in its place of issue and to its enforcement. Some of the most popular international arbitration centres are London, Paris, Switzerland, Singapore and New York.
It is easy to understand why the global business community often views arbitration as the preferred method of resolving cross-border commercial disputes, as further explained below:
Arbitration has traditionally been considered to be a cheaper option than litigating in national courts. Whilst this is no longer necessarily the case, particularly compared with the cost of litigation in some civil law jurisdictions, the costs of arbitration may still be dwarfed by the costs of court proceedings in some jurisdictions, such as those which mandate a wide disclosure process.
The main attractions of arbitration are well known and do not require an expansive analysis. Arbitration provides a system which parties can tailor to their needs, which is relatively confidential, which provides a neutral forum for resolving disputes with arbitrators of the parties’ choice. Arbitration is independent of state courts (and the expense, delays and uncertainties often involved in litigation), and may be less costly and more expedient than litigation, with an enforceable award issued at the end of the process.
While arbitration proceedings involving substantial disputes are rarely cheap, concerns about the duration of arbitral proceedings and the costs involved can be exaggerated. It is true that arbitral proceedings in the commercial context can last a number of months or even several years, but so can court cases, especially in less arbitration-friendly jurisdictions. In certain jurisdictions, litigation can and often does take years, if not decades, with the courts struggling to hear the mind boggling backlogs of unresolved cases: for example, in 2009 Indian courts had a backlog of 30 million unresolved cases (Indiatogether.org – 2009; last accessed January 2016). Even in the courts of more developed jurisdictions, instances of exorbitantly lengthy proceedings are not unheard of: in the famous BCCI case, the opening submissions for the claimant took 80 days to deliver, and those for the defendant a record 119 days (Guardian.co.uk -2005; last accessed January 2016).
Arbitration has therefore become, and remains, one of the preferred methods for resolving international commercial disputes. As recent institutional statistics show, its popularity is increasing in tandem with increased support for arbitration from national courts in most developed jurisdictions and many developing ones over the past few years.