United States: International Commercial Arbitration- An Overview

Last Updated: December 2 2002
Article by Praveen Medikundam

Arbitration is intended to provide a quicker, less expensive, and more private alternative to litigation. This voluntary and intelligent assent to an alternative dispute resolution mechanism allows for decision making other than by law-involves commitment and credibility. International commercial arbitration has increased in popularity and use over the past decade as the business community has begun to realize the allure of arbitration proceedings.

Instead of submitting claims to a prolonged and potentially expensive suite in a civil court system, contacting parties can submit their claims to binding arbitration- the method often forgotten by professional is at once the most effective and most sensible discussion among parties themselves. The desirability of arbitration is obvious- the process is expedient, relaxes the formal rules of the judiciary, allows the parties to structure the proceedings and choose a convenient forum, and usually reduces the cost of dispute resolution. While cost and delay my vary in degree with judicial intervention into the finality of an arbitral award, privacy would appear lost in all cases where the court system assumes a public role in the settlement.

This article examines the role of commercial arbitration in international context.

Most commonly, arbitrants do not carefully and specifically delineate in their arbitration agreement that the arbitration is to be decided based on designated principles of substantive law and that deviation from this directive is the ground for vacation of the award.

Choice of law clause

In the United States, when arbitrants have expressed some preference of law in the arbitration context, this has most often been in the form of a general contractual reference, such as a typically worded choice of law clause. A choice of law clause could appear either within an arbitration clause or as a clause within a contra t that is subject of arbitration. A simple choice of law clause typically has been viewed as encompassing substantive law and not procedural law, for example, if a choice of law clause invokes the law of the country A in a case before the courts of country B, country B’s law will govern the procedural matters, but the country B’s court will determine the rights of the parties based on country A’s substantive law. Since the remedy should reflect the substantive right, one would ordinarily expect the appropriate remedy to be that of chosen state. In arbitration context, the choice of law clause presents as enigma.

Resort to equity is a common method of challenging an arbitration award. A bill inequity for vacation could be sort for causes that ordinarily gave rise to equitable jurisdiction such as bias, partiality, fraud, corruption, or mistake. Today, since arbitration statues are viewed as affording an effective remedy, courts normally refuse to intervene using their equitable powers. Yet in some countries equity jurisdiction may provide an avenue for defeating an arbitration award based on an error of law. This is probably more likely to occur in those few jurisdictions which continue the separation between law and equity or where modern arbitration status have not been enacted.

Though legal rules for interpreting contract language may be useful, they are not paramount. It has been said, for example, that merchants favour commercial arbitration because they " value their commercial relationships over assertion of legal rights," and they are more trusting of "informed business experts sympathetic to commercial imperatives than inscrutable judges or ignorant juries". A voluntary and intelligent assent to an alternative dispute resolution mechanism that allows for decision making other than by law involves commitment and credibility.

Awarding interest in international arbitrations

This is particularly problematic in the international arena. Such claims often involve millions of dollars, and because a lengthy period may elapse between the origin of the dispute and the final award, whether an arbitrator awards interest may be significant, from a monetary standpoint, as the principle claim itself. There is a lack of unanimity concerning whether procedural or substantive law governs the questions, whether an arbitral tribunal has the authority to award interest. In this step, the arbitrator would resolve the interest claim on the basis of the following presumptions,

  1. The debtor is liable for the payment of interest
  2. Interest runs from the date of default and
  3. Interest accrues at a rate corresponding to that of a commonly used savings standard in the country of the currency in which payment is to be made it is compounded quarterly.

While the laws of most countries permit the payment of interest, the practice reveals no consensus on the method of awarding interest in international arbitration cases. An arbitrator evaluating an interest claim will ordinarily turn first to the agreement for guidance. In the event that the agreement contains a provision addressing the payment of interest or specifying the law that governs the matter, the arbitrator usually resolves the interest claim accordingly. How ever agreements often fail to deal with the payment of interest, the often contain no choice of law clause, and when they do, the provision is often ambiguous with respect to the applicable law, substantive or procedural, relating to the awarding of interest. In such circumstances the arbitrator can select a law to resolve the interest claim by applying one of numerous choice of law rules. Alternatively the arbitrator can decide the issue in accordance with general principles of international law.

When resolving disputes I international commercial arbitration, the arbitrator’s selection can be governed by the choice of law rules of (1) the seat of arbitration (2) the arbitrators home country (3) the country where the award will be enforced (4) all other states having a connection with the parties dispute (5) international treaty

The philosophy of commercial arbitration in international parlance is in continual development and the reader is encouraged to look to specialist works of further reading. International commerce, that is tantamount to an assurance, should matters go wrong, a party could look forward to a satisfactory and predicable means of resource.

If justice is truth in action then arbitration is the route to that truth.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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