Arbitration: An Effective Way Of International Dispute Resolution
by Anna Kalisz

The risk of conflict is impossible to avoid in both domestic and foreign business transactions. It is greater especially in the second category, where the parties differ in legal cultures, provisions and procedures, court systems, languages, cultural backgrounds or economic views, not mentioning any unforeseeable change in circumstances which can affect business dealings. Those factors cannot only have substantial effects upon the execution of the contract, but also bring so-called "dispute resolution risk" - a possibility of unsatisfactory decision made by foreign court according to foreign law -. To avoid such disadvantages international disputes arising out of the business transactions are increasingly being resolved with alternative methods. One of them is arbitration - an informal, adversary procedure in which each party presents their position before neutral and impartial "third part". This "third part" - a sole arbitrator or a panel of them - resolves the dispute by making a binding award.

Commercial arbitration has been around for centuries. This method has an ancient origin, and its first traces appeared already in the Roman empire and developed through the following centuries. In nineteenth century - with the progress of international commerce - it gained worldwide acceptance and grown to be significant way for settling international business conflicts. At this time the nature of this institution had changed and became more complex. Arbitration became more "judicial" and an arbitrator evolved into a position of neutral and impartial "judge". Also the ability to include the "arbitration clause" in contract provisions appeared and gave the parties a chance to predict the conflict and to reduce the risk of a trial in foreign and unacceptable court. Since the end of World War II, when international trade and commerce increased extensively, and this internationalization brought along potentiality of a greater number of conflicts, arbitration has become the preferred device of dispute settlement in international commerce.

During the last quarter of the twentieth century, with the rapid globalization of the world economy, arbitration has become very widely used because of its specific characteristics. The advantages of this non-litigious form of settlement include the following:

• opportunity to select an arbitrator or the method for the selection of arbitrator by the parties;
• neutrality of an arbitrator without a risk of bias in foreign courts;
• ability to choose the place and the language of the procedure;
• private, confidential and informal proceedings, less adversarial than litigation and closed to the public;
• relaxed rules of evidences and procedures, which allow to base the award more on fairness and technicalities;
• overcoming such barriers as different national procedures or risk of "hometown justice" in national courts;
• avoiding necessity of translation all documents into the language of the proceeding court;
• limited judicial review;
• avoiding problems with recognition and enforcement, which is common for foreign courts decisions;
• helping to solve the conflict before business and personal relationships between the parties have been destroyed, what can be particularly useful when they are still having business going on;
• resolving the conflict by neutral, impartial professional who knows the business matter better than trained only in law judge;
• simple cases can take place quicker and be less expensive than through traditional litigation;

Even though some of the mentioned factors (such as the lack of formal discovery procedure or reduced ability to appeal) along with a risk of lack of finality may be viewed as disadvantages, arbitration is presently a favored method of dispute resolution, particularly for conflicts arising out of the sale of goods or technology and foreign investments. Currently in the Western World more than 70% of the disputes are resolved that way, and international commercial arbitration awards are recognized by national courts in most parts of the world more readily than foreign court judgments.

Until the nineteenth century arbitration was characteristically applied only when the dispute already existed. Since that time it is possible to select this procedure before the conflict occurs. The usual fundamental jurisdictional basis for using this institution is agreement by the parties to the dispute. Without it an arbitrator has no power to decide the matter, because unlike any other consensual conflict-resolution tool, an international arbitration derives its authority from the will of the parties. There are two possible types of such agreements - arbitration clauses for future conflicts and submission of agreements for existing ones. If the primary contract does not provide the arbitration clause, the parties may agree to submit the dispute to arbitration after it occurs. Provisions regarding arbitration may be included in an additional, separate agreement or in a main one as a clause. Before adding it in one or the other way to the contract, the parties need to confirm whether this particular kind of dispute is legally capable of being resolved by an arbitration under various legal systems:

• under the law applicable to the contract;
• under the laws of the countries where the agreement will be enforced;
• under the law of the place of arbitration;

An arbitration agreement should be made in writing and stipulate at minimum the scope, the language and the place of arbitration, the procedural rules, the choice of institutional or ad hoc procedure, the arbitrator or a number of arbitrators (the clause may even specify their qualifications), the possibility of appeal, as well as the currency and the allocation of costs including the arbitrator's fee. If the parties to the dispute do not specify such details, they may invoke provisions included in international treaties. In such cases the proceeding is conducted in accordance with the rules of procedure contained in these agreements. The main inconvenience is that although arbitration centers are very widespread now, there is still no uniform procedure for all cases. These questions are regulated under auspices of different institutions and rules. The parties themselves choose which of them is to be applicated in case of the conflict. To unify those provisions numerous institutions promoting this form of dispute resolving - such as JAMS/Endispute, American Arbitration Association (AAA), United Nations Commission on International Trade Law Arbitration (UNCITRAL), International Center for the Settlement of Investment Deputes (ICSID) or International Chamber of Commerce (ICC) recommend the model arbitration clauses and procedures for international business contracts. This wide rage of alternative institutions may cause some problems with neutrality - for example the American party will be rather willing to choose JAMS or AAA and the European one - ICC in Paris. Independently on the legal grounds every arbitration procedure shall be an adversial, fair and neutral fact-finding process with its own system of procedural rules similar to a simplified civil process. The model procedures are fairly uniform throughout the world and contains the following elements

1. Initiation of arbitration (filing a demand for arbitration by the aggrieved party);
2. Defendant's response;
3. Constitution of the arbitral tribunal (selection of a sole arbitrator or a panel of arbitrators);
4. Organization phase (determination of time, place and procedural rules);
5. Submission of evidences and hearings (with an opportunity for each party to be heard);
6. Making the award (based on the evidences, the arguments of the parties and the applicable rules and principles).

An award, though binding, does not give itself a compensation to a winning party. That will result only when the opposite party acts in accordance with the arbitrator's decision, which happens in 90 % of cases. If it does not occur voluntary the winner may obtain the assistance of the court, either in place of arbitration or elsewhere to enforce the award through the legal process.

The procedural recognition and enforcement rules are governed by basic international multilateral acts such as :

I. 1923 - The Protocol on Arbitration Clauses (The Geneva Protocol);
II. 1927 - The Convention on the Execution of Foreign Arbitral Awards (The Geneva Convention);
III. 958 - The New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention);
IV. 961 - The European Convention on International Commercial Arbitration (The European Convention);
V. 965 - The Convention on the Settlement of Investment Disputes between States and National of Other States (The Washington Convention);
VI. 1975 - Inter-American Convention on International Commercial Arbitration ( Panama Convention ).

They, like arbitration clauses, contain provisions on institution rules, organization, powers and functions of various arbitration tribunals, appointing and confirming arbitrators, language and place of arbitration, representation of the parties, procedural questions, rules of evidence, interpretation, recognition and enforcement of the award, administrative and financial regulations.

The arbitration provisions are also included in bilateral treaties in accordance to which the parties may apply the provided rules or agree in writing to modify them. In certain cases the parties seeking settlement and enforcement may wish to rely primarily on bilateral agreement, rather than on multilateral conventions.

The important legal bases for arbitration are also the domestic laws of the various countries, especially in the absence of international treaty provisions. In these cases enforceability of arbitration awards depends purely on the local regulations, which are, of course, by no means uniform. They are included either in civil procedures, codes or in separate arbitration Acts. Some legal systems allow international awards enforcement with no difficulties, while others impose conditions and various procedural requirements. This situation is hardly a problem now, since most of principal trading countries are parties to the New York Convention.

Some of the most "favorable" laws for arbitration are the English and French regulations. In an effort to establish themselves as international arbitration centers those countries introduced legislation to limit the ability of their courts to intervene in arbitration in favor of such institutions as The London Court of International Arbitration (LCIA) and the ICC. Modern legal rules are also provided by the statutes in Austria, Belgium, Bulgaria, Denmark, Italy, Sweden and Switzerland. After the collapse of Soviet empire several Central and Eastern Europe countries started successfully enacting or modifying arbitration acts while moving towards democracy and market economy. There are also some regions - such as the Far East or some Arabic countries where the tradition of international arbitration is still largely unknown.

In spite of the diversity in arbitration during the last few decades, there has been a significant progress towards the establishment of commonly accepted legal principles as well as on business dealings in general. However, this progress is not a rapid procedure. For example The European Convention Providing a Uniform Law on Arbitration, intended to unify arbitration law for all the European countries, never entered into force because it had not been ratified by the minimum required number of states.

In the light of the above conclusions international arbitration is a-national phenomenon, and the development and improvement of its use seems to be inevitable. In many countries this institution is already the main device for resolution of international commercial disputes, and it will be increasing in frequency together with international trade.

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