The expansion and globalisation of cross-border business has led to increasingly high and complex commercial relationships between business, investors and states. Inevitably, some of those relationships break down and parties need to consider how to resolve their disputes. Apart from attempting to resolve the matter by themselves through negotiations or any different form of alternative dispute resolution method, such as mediation, the two options international parties have generally are (i) litigation before the courts of a specific country, or (ii) international arbitration.
Before the inception and development of arbitration, litigation was the only formal of resolving disputes when two or more interests are in disagreement. Arbitration is al alternative dispute resolution conducted before an impartial tribunal, which emanates from the agreement of the parties, but which is regulated and enforced by the state.
Arbitration can be, either entered into when the dispute arises, or it can also be included as a clause in a commercial agreement (a contract) stating that, in case of disagreement, matters arising between the parties will be referred to arbitration.
“International” arbitration refers to the resolution of cross-border transaction disputes. According to the United National Commission on International Trade Law, an arbitration is international if:
- The parties to an agreement to conciliate have, at the time of the conclusion of that agreement, their places of business in different States; or
- The State in which parties have their places of business is different from either: i) the State in which substantial part of the obligations of the commercial relationship is to be performed; or (ii) the State with which the subject matter of the dispute is most closely connected.
The main characteristics of arbitration, which differentiates it from court proceedings are:
- Party Autonomy. Plays the most fundamental and predominant principle in international arbitration. This particular relevance of party autonomy becomes obvious when considering the fact that any arbitration requires the consent of the parties. In addition, parties are able to choose such important elements as the applicable law, language and venue of the arbitration.
- The freedom to choose the arbitrator(s) and the laws governing the arbitration. It is also a direct consequence from the party of autonomy principle. Nevertheless, the parties’ freedom to choose their arbitrators is not without limits: the arbitrations must be independent and impartial by all means, which makes arbitration a neutral procedure.
- Confidentiality of the proceedings. Apart from certain fields of law in which individual interests are considered higher than public interests, state courts proceedings are usually held in public due to transparency. In contrast to that, many arbitration proceedings are kept confidential. This confidentiality can protect the parties’ reputation in certain cases and prevents sensitive information to be disclosed to the public or competitors.
- No appellate level. It is one of the most striking features in contrast to state court proceedings. However, there are a few rules of arbitral institutions who provide appellate level (the American Arbitration Association or the Israeli Institute of Commercial Arbitration), but these are exceptional cases.