Arbitration is the process of resolving an issue between parties without approaching to court. In arbitration, a dispute is submitted by agreement of the parties to one or more arbitrators, and they make a binding decision on the dispute. The primary reason for the parties to submit international disputes to be resolved through arbitration is to avoid the uncertainties associated with litigation in national courts and the need to enforce judgments in a foreign court.
International arbitration is the established method for resolving disputes between parties to international commercial agreements. Arbitration is international if the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states; or one of the following places is situated outside the state in which the parties have their places of business.
- The place of arbitration if determined in, or pursuant to, the arbitration agreement;
- Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
- The parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.
The practice of international arbitration is developed to allow parties from different legal and cultural backgrounds to resolve their disputes without the formalities of their underlying legal systems. The International Centre for Dispute Resolution (ICDR) was established in 1996. It administers international arbitration proceedings initiated under the institution’s rules.
The United Nations Commission on International Trade Law adopted the Model Law on International Commercial Arbitration on 21 June 1985. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. The Model Law reflects worldwide consensus on key aspects of international arbitration practice having been accepted by states of all regions and the different legal or economic systems of the world.
In 2006 the model law was amended to include more detailed provisions on interim measures. Although the model law is not binding, individual states may adopt the model law by incorporating it into their domestic law. The U.S. international commercial arbitration law applies to international commercial arbitration, subject to any agreement in force between this state and any other state.
An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The arbitration agreement has to be in writing. It should be contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.
In MITSUBISHI MOTORS CORP. v. SOLER CHRYSLER-PLYMOUTH, INC., 1983 U.S. Briefs 1569 (U.S. Feb. 12, 1985), the petitioner, Mitsubishi Motors Corp., a Japanese automobile manufacturer, against respondent, Soler Chrysler-Plymouth, Inc., a Puerto Rican automobile dealer, sought an order compelling arbitration of certain disputes arising out of a sales agreement between the companies. The U.S. District Court for the District of Puerto Rico ordered arbitration of most of the issues between the parties by considering an arbitration clause contained in the sales agreement.
The clause in the agreement read as “All disputes, controversies or differences which may arise between [ Mitsubishi] and [ Soler] out of or in relation to Articles I-B through V of this agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association.”
The district court held that the international character of the transaction required enforcement of the arbitration agreement even as to the antitrust claims. On appeal, the U.S. Court of Appeals for the First Circuit found that respondent’s antitrust claims were not appropriate for arbitration. The Supreme Court granted certiorari on the issue of whether a U.S. court should enforce an arbitration agreement with respect to antitrust claims arising from an international commercial transaction, and held that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in resolving disputes require the parties’ agreement, even assuming that a differing result would follow in a domestic context.
Arbitration is one of the various methods for dispute resolution related to international commercial agreements. The choice of arbitration is often made for the reasons of confidentiality, and therefore its use has increased along with the growth of international trade and commerce.