Established in 1923 as ICC’s arbitration body, the International Court of Arbitration pioneered international commercial arbitration as it is known today, initiating and leading the movement that culminated in the adoption of the New York Convention, the most important multilateral treaty on international arbitration. The Court has also developed resolution mechanisms specifically conceived for business disputes in an international context. Such disputes pose unique challenges, usually because the parties will be of different nationalities, implying varied linguistic, legal and cultural backgrounds. Difficulties can be further compounded by distance, and the perceived or actual inequality for one party to submit to the courts of another party’s home ground.
The Court provides parties with a flexible and neutral setting for dispute resolution. It offers confidentiality and extraordinary freedom for parties to choose the framework for how and where they want to resolve their dispute. While the dispute itself is resolved by independent arbitrators, the Court supervises the process from beginning to end, increasing the quality of the process and enforceability of the awards.
There are no restrictions as to who can use ICC Arbitration or who can act as arbitrators. This is reflected in the increasing number of nationalities represented. Since its inception, the Court has administered more than 19,000 cases involving parties and arbitrators from some 180 countries.
Advantages of arbitration
Businesses choose arbitration over litigation because of its neutrality, finality, enforceability, procedural flexibility, and the ability to choose the arbitrators.
A survey undertaken by Queen Mary University Law School in London and first published in 2006 concluded that, for the resolution of cross-border disputes, “73% of respondents prefer to use international arbitration, either alone (29%) or in combination with Mediation or other amicable settlement techniques in a multi-tiered dispute resolution process (44%)”, and that “the top reasons for choosing international arbitration are flexibility of procedure, the enforceability of awards, the privacy afforded by the process and the ability of parties to select the arbitrators”.
The arbitration procedure is driven by “party autonomy”, that is choices made by the parties themselves about how they want the dispute to be dealt with. The first choice, of course, is whether or not to use arbitration in the first place. The parties can then choose which kind of arbitration (e.g. administered by an institution or not and which institution), select the seat or place of the arbitration, the language of the arbitration, the applicable law, the number of arbitrators, etc. Importantly, the parties can also select the arbitrators or agree on a method for their selection.
There is also great procedural flexibility within the context of a given arbitration. For example, the parties can choose to have a slow and thorough or a fast and economical arbitration. For obvious reasons, speed, efficiency and costs are usually considered important. Where appropriate procedures are put in place, arbitration can be faster and less expensive than litigation, especially considering that there is generally no appeal from international arbitral awards.
In the absence of party agreement on points of procedure, the parties’ views will nonetheless be considered carefully by the arbitral tribunal when it determines the procedure.
Court litigation in transnational matters generally has to take place in the courts of one of the parties to a dispute. This also means that the judge(s) will share one side’s nationality, or at least legal education and training. The opposing party or parties may accordingly feel estranged or even discriminated against. At the very least, the procedure, and possibly also the language of the proceedings, will be less familiar to one side than to the other, thus creating a real or perceived advantage for one side.
International arbitration is nationally neutral in the sense that there does not need to be a link between any party’s place of incorporation or residence and the place of the arbitration. The parties can choose any place of arbitration, any applicable law, and any language for their arbitration. All of these elements can be neutral with respect to the parties. The freedom to choose the arbitrators also ensures that the arbitrators will be neutral if that is what the parties desire.
The parties’ power to choose the arbitrators is a major advantage of arbitration over litigation. It inspires confidence in the individual decision makers and thereby the process. It also means that individuals with the relevant technical or legal expertise, or other desired qualities, will decide the dispute.
Where there is to be a sole arbitrator, the parties often try to agree on the individual, failing which he or she is appointed through an agreed process. Where there are three arbitrators it is typical for each side to nominate a co-arbitrator and for the president to be appointed in the same way as a sole arbitrator is appointed. Alternatively, the parties often empower the co-arbitrators to select the presiding arbitrator.
It is often said that an arbitration is only as good as the arbitrators. Indeed there is no doubt that the quality and experience of the arbitrators will significantly impact the quality of the process and its outcome. It can be important, or at least desirable, that arbitrators possess certain skills and/or even expertise, whether linguistic, technical or legal. They should also be able to dedicate sufficient time to the case and be available for hearings and meetings. Finally, all arbitrators must be, and remain, independent from the parties and impartial in deciding the case. Appointing the right default arbitrators (where the parties are not able to agree on the arbitrators) is a core function for any arbitral institution.
As noted above, arbitration can be faster and less expensive than litigation in the courts. Experienced arbitrators have developed expertise in designing procedures that maximize time and costs efficiency and thereby minimize the disruption to the ordinary business of parties involved in arbitration proceedings. That said, a complex international dispute can take a great deal of time and money to resolve, even by arbitration. Even in such cases, the limited scope for challenging arbitral awards, as compared with court judgments, offers a clear advantage in terms of limiting time and costs. The finality of arbitration ensures that the parties should not be entangled in a prolonged and costly series of appeals.
Arbitration proceedings and hearings are completely private. Only the arbitrators and the parties (including their lawyers) are permitted to attend, not the general public. Similarly, only the same actors receive copies of the documents, submissions, correspondence and awards that are produced during the arbitration.
A final and enforceable outcome can generally be achieved only by recourse to the courts or by arbitration. Softer dispute resolution mechanisms, like mediation and other procedures under the ICC Mediation Rules, have various benefits for appropriate cases, but a successful outcome depends, ultimately, on the goodwill and cooperation of the parties. Goodwill and cooperation are desirable in arbitration as well, but not necessary because the outcome does not depend on the parties reaching an agreement. Rather, the arbitral tribunal is empowered to make a final, binding award.
Court judgements in commercial cases can usually be appealed at least once, often more than once, to higher courts. This is not true for arbitration. There is generally no appeal at all permitted from an arbitral tribunal’s award in an international arbitration. The result is absolutely final, subject only to a request to set aside the award due to procedural irregularities such as an unfair procedure or arbitrator lack of independence.
- Recognition and enforcement of awards
Arbitral awards enjoy much simpler international recognition than court judgments. Some 145 countries have signed the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Convention provides for the enforcement of arbitration agreements and for the recognition and enforcement of awards in all contracting states. There are several other multilateral and bilateral arbitration conventions that may also facilitate enforcement.
There are certain requirements for arbitration awards to be enforceable under the New York Convention. An important part of ICC’s role in administering arbitrations is to improve the enforceability of ICC awards.
Advantages of using an arbitral institution to administer arbitration proceedings
An arbitral institution organizes and provides services in connection with arbitration proceedings.
Certain leading institutions have also assumed a role as industry regulators, setting standards and practices and offering training and conferences. Arbitral institutions, in particular ICC, have contributed significantly to the growth and success of international arbitration.
The level of service offered by an arbitral institution depends entirely on the institution and can range from simple appointment of a default arbitrator to full supervision and monitoring from the beginning to the end of the proceedings. The ICC system of arbitration offers full supervision and a range of important services including, notably, the scrutiny of draft arbitral awards. Link to Award and Award scrutiny page.
The cost of the services provided and the manner in which they are calculated are important points of difference among arbitral institutions. Another important difference is the method used to calculate arbitrators’ fees. While there is significant variation among institutions, the cost must be assessed against the extent and quality of service offered. An essential consideration is whether the institution offers value for money by reference to the services offered. The costs of ICC Arbitration are explained here.
Whether parties wish to use an arbitral institution, and which one, are entirely a matter of party choice and discretion. It is, however, not possible to engage the services of an arbitral institution unless all relevant parties have agreed.
Ad hoc arbitration is when there is no institution involved. The arbitrators and the parties administer the proceedings themselves. This can work fine if all parties (and their lawyers) are cooperative and really know what they are doing (or are advised by lawyers who really know what they are doing). However, by the time a dispute has reached the stage of arbitration it often happens that at least one party no longer wants to cooperate. There are numerous examples of dilatory tactics which can cause serious delays and unnecessary costs. Well-established arbitral institutions can deal quickly and efficiently with many such tactics and/or assist the arbitral tribunal to do so. Moreover, ICC can efficiently deal with many procedural issues that might otherwise have to be resolved by a domestic court if ICC was not involved. A good institution can also remove any arbitrator who lacks independence or is otherwise not performing his or her functions properly.
For all of these reasons, it is not surprising in a 2008 study by Queen Mary University Law School on the views of in-house counsel at leading multinational corporations found that: “86% of awards that were rendered over the last 10 years were under the rules of an arbitration institution, while 14% were under ad hoc arbitrations”. This confirms anecdotal evidence from arbitration practitioners and users that institutional arbitration is preferred over ad hoc arbitration. The 2010 version of the same study showed that on a global level ICC is the preferred arbitral institution, with 50% of participating corporations preferring ICC. The second most preferred institution was chosen by 14% of participants. One very important point must be kept in mind in relation to arbitral institutions: like many aspects of the arbitration procedure, an institution can only be utilized if the parties have specifically chosen to use it. It is not possible for an institution to administer an arbitration unless the parties have agreed. Since it is usually difficult for parties to agree after a dispute has arisen, institutions are normally chosen in advance, for example in an arbitration clause contained in a contract.