Emerging International trends and practices in Arbitration

By Arya Gupta

Introduction

From the very beginning, of Ancient civilizations to the French revolution, from Asian to European countries, businesspersons, common men, and women, or industrialists all over the world, used to deal with trade and commerce. During this process, if any disputes or conflicts arise between the parties of an agreement, in the matters of trade practices and industrial disputes, they choose to solve it through Arbitration, even before legal justice machinery.

In matters of dispute resolution or arbitration, Richard Cobden quotes that, “At all events, arbitration is more rational, just, and humane than the resort to the sword.” He believes principles of arbitration to be more powerful than any sword, in matters, solving disputes, and maintaining cooperation. So the big question is what does Arbitration mean? Why is it better than other alternative dispute mechanisms? What are the global trends and practices that are followed in International Arbitration? What are the challenges faced in the field of International Arbitration and how to resolve them? In this blog, we’ll find the answers to all the above questions related to Arbitration. 

What is Arbitration?

According to the World Intellectual Property Organisation (WIPO), “Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.”. It is an Alternative Dispute Resolution Mechanism, as it offers an alternative to the court system. Arbitration is used to solve disputes in every sector of the economy of a country. Be it in the disputes of sale of goods, in the construction, entertainment, or sports industry, either large-scale or small-scale industry, uses Arbitration as it represents the high degree of convergence across regions.

To understand Arbitration let’s take an example of an American clothing brand, planning to open its international outlet in India, in one of the Indian showrooms of a clothing line. For this, they must have signed a contract related to the business venture, commercial relationships, shares, with different mutual agreements on know-how, payment, and gains and losses. But what if something goes wrong with the business and the matter is taken to either American Courts or the Indian Courts, for both the companies will not trust the jurisdiction of the other one. If there’s a contract between the public entity, and the American company fights against the Indian State, the state will become a judge in its own case, which is against the Principle of Natural Justice as per the Indian Constitution, and the same goes for the other party, should the matter be heard in the American Courts. So, here the Arbitration clause plays an important role in ensuring a private, neutral and competent framework to resolve international disputes.

Advantages of Arbitration Autonomy 

Arbitration involves the agreement of both parties. Parties have the arbitration autonomy where, they can choose an Arbitration clause according to their will in their contract, and the dispute can be sent for further scrutiny by the way of introducing a submission agreement. The parties are free to choose a potential arbitrator, an independent and impartial individual of their own choice, or they can even choose several arbitrators based on their qualifications, qualities, and experience, consensually. They can also choose the place of Arbitration, the time, or the language preferred by both parties. They have the freedom to choose the kind of provisions or the laws according to which their matters should be dealt with. The decision given by the arbitrator is final and binding to the parties of the contract.

 Arbitration is given huge importance over litigation, as in the words of Abraham Lincoln, “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man”. There will still be business enough”. He encourages practicing Arbitration before litigation because of the rigid, ineffective, costly, and time-consuming court adjudicatory process, whereby Arbitration offers a high degree of certainty to parties with the belief that they would recognize and enforce final awards, and serve as a mechanism for settlement of cross-border disputes.

Global Trends and Practices followed in International Arbitration

The New York Convention, 1958 allows the arbitration awards to be enforced in 160+ countries in the world. One of the most important Arbitration Centre is the International Chamber of Commerce (ICC), its headquarters is in Paris, and with many offices on other continents, assisting parties and arbitrators in overcoming procedural obstacles. The International Centre for Settlement of Investment disputes (ICSID), located in Washington, DC, that deals with matters of huge investments and profit-sharing disputes between the investors. The London Court of International Arbitration (LCIA), its secretariat is based at the International Dispute Resolution Centre (IDRC), in central London, which provides comprehensive international dispute resolution services. 

• As in the post-pandemic world, we experienced multiple reforms and remotely managed services, in the big corporate world as well as in small sector industries, which also aided in the extensive use of online hearing of International Arbitration matters, contributing it to be a cost-effective alternative to the physical hearings, saving time and resources.

• Many disputes during pandemic have arisen to be solved through Arbitration, Shortly, there’s a major probability of a rise in cases of Force Majeure clauses in Contracts, non-fulfillment of economic investment disputes, other statutory tax claims, and security transactions, paving a long way for International Arbitration, its client and community.

• Due to the current situation, there’s a high risk of corporate insolvency, around the world where arbitral tribunals and institutions will have the authority to decide the fate of the corporation, acting as an easy method of problem-solving and dispute resolution.

• Because of the hardening situations and tight economic landscape at both the national and international front during the pandemic, the international construction and infrastructure industry was badly hit; market uncertainty and lack of adequate finances will lead to disputes being resolved through arbitration.

• A recent addition to arbitral rules and regulation will ease the Arbitration process with growing competition among countries to establish itself as a major arbitral hub and old arbitration laws of these countries are being replaced by adopting newly specialized laws fashioned primarily for this purpose.

Emerging challenges with growing trends in Arbitration

From the world of theoretical beliefs to the practical application of Arbitral techniques to solve disputes, many emerging challenges are faced by the parties involved and as well as the arbitrators, here are some of the problems mentioned.

1. Astronomical Cost and undue delay

According to the assumed belief, Arbitration procedures are cost-effective but this just tells half the story, in the present world scenario parties spend more on Arbitration than litigation. Lawyer’s fees and related charges, costs for expert evidence and witness, other expenditures incurred by parties for arbitration constitute 83% of the entire costs of the proceedings, which translates into unavoidable delays.

2. A myriad of Arbitral Institutions

Many new Arbitration centers and tribunals are formed, which creates numerous formalism & further humungous technicalities, leading to several procedures. International arbitration practices also include the use of Amicus Curiae, the discovery of facts, documentary evidence, and interrogatories, making arbitration more analogous to Litigation.

3. The dearth of Quality Arbitrators

From a global perspective, with so many arbitration institutions available, there lacks diversity among arbitrators to provide parties with a particularly fair award, conduct proper procedural hearings. Due to monopoly, parties coming from different regions of the world, the burden of cases outgrows, resulting in unfair operation of arbitration procedure and unduly settlement of disputes.

4. No procedure followed to award costs and fees

The costs incurred are of two types, the first is the cost of proceedings and the second is the parties’ cost. In cost of proceedings, it covers the tribunal fees and administrative charges. In parties’ cost, the expenses incurred are Attorney fees, Experts fees, and fees for professional services, where there is no standard of uniformity to be followed while granting the award of costs and fees.

Conclusion

The importance of international arbitration derives from the parties’ agreement, and their freedom to choose their date, place, time, language, and arbitration institutions and tribunals provide for parties’ freedom to specify the procedure under which the tribunal can conduct the proceedings,  In case of dissatisfaction with the process that arbitrators have dealt with disputes and failed to act within their power in operating efficiently or passively overusing their power,  the tribunal should encourage the parties to be aware of the possibilities of what could help them achieve better results, while promoting efficiency to encouraging growth and not just blindly follow the “fit for all purposes” technique. The tribunals must be empowered with institutional rules and regulations. If the party’s attorneys believe that the tribunal is not efficient or has been unfair to its party during the proceedings, should raise such concerns immediately, which must be addressed accordingly.