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Overview: Guide to International Arbitration

Published on : 25 Jun 2020

Guide to International Arbitration

"When will mankind be convinced and agree to settle their difficulties by arbitration?"- Benjamin Franklin    

A year ago, it seemed as if Brexit was finally about to happen. One year on, they are in the same position again. At one point, albeit, it seemed likely that the UK would leave the European Union (EU) without a Withdrawal Agreement (a 'no-deal Brexit'), which would have been hugely disruptive, not least concerning the enforcement of English court judgments in Europe. As a result, parties chose to include arbitration in their agreements, and this could lead soon to an increase in London-seated arbitrations. Under the agreement, the UK enters a transition period where it will continue to follow EU rules until 31 December 2020, by which time both sides hope to have agreed on a trade deal. The shift towards London-seated arbitration in international commercial contracts may turn into a long-term trend.   

From a global perspective, Brexit is a sideshow compared to China's Belt & Road Initiative (BRI), the most significant investment and construction programme that has been undertaken. Arbitral institutions in APAC are eager to pick up disputes work arising from the many complexes, multi-party projects that makeup BRI.  

In April 2019, Beijing and Hong Kong announced an arrangement permitting arbitrations seated in the island to be supported by interim or protective measures issued by courts in the mainland. The critical point is that the arbitration can be administered by any institution, as long as it appears on the official list of permitted bodies. The International Chamber of Commerce (ICC) along with the Hong Kong International Arbitration Centre (HKIAC) and a handful of other institutions appears on the list. Sadly, the difficulties in Hong Kong are affecting business confidence in the island's economy and institutions. Unless the political challenges are fully resolved, it is difficult to judge what their overall effect will be. Still, from an arbitration perspective, there is the potential for disputes to migrate southwards to Hong Kong's main rival in the region, Singapore. The caseload of the HKIAC has remained constant, and that of the Singapore International Arbitration Centre (SIAC) has more than doubled throughout the current decade. Both have recently permitted third-party funding of arbitrations. Hong Kong's law permits arbitral awards to be appealed on the point of law, provided parties to opt into the arrangement. This is contrary to the position in England, where appeals of this kind are allowed unless parties opt-out as per section 69 of the Arbitration Act 1996.   

The expansion and globalization of cross-border investment and trade have led to an increase in more complex relationships between businesses, investors, and States. Inevitably, some of the relationships do break down. Hence the parties need to consider the best means of resolving any dispute which may arise, preferably at the outset of the relationship. Arbitration has been in use since centuries, with Plato writing about arbitration amongst the ancient Greeks. In the new era, arbitration has become the standard method to resolve disputes in specific industry sectors such as construction, shipping, and insurance where the arbitrators' technical expertise is particularly valued. However, over the last 50 years, the international community has increasingly embraced arbitration, with many recognizing its significance as the primary means of resolving complex, transnational, disputes as well as the economic benefits for a State perceived as "arbitration-friendly". Unlike courts, the arbitral tribunals in commercial disputes have no inherent jurisdiction or power as their authority arises from the parties' contract. Albeit, once selected by the parties, arbitration has the backing of statutes and treaties. The essential elements include that the International Arbitration Clause must be in writing to be enforceable as most jurisdictions require the arbitration agreement to be in writing (see, e.g., New York Convention Article II (1)). Also, the International Arbitration must be mandatory. The arbitration clause must make clear that if a dispute arises, it must be arbitrated. Permissive language suggesting arbitration is optional, such as "any dispute may be referred to arbitration," in certain jurisdictions may provide an argument for a non-cooperating party to try to avoid arbitration when a dispute arises. Some parties, in particular lenders, may prefer unilateral option clauses, allowing one party the option to choose between arbitration or court proceedings in the event of a dispute. These clauses are not enforceable in all jurisdictions and should be carefully considered before being included. Therefore, parties should take particular caution in drafting arbitration provisions. In a unanimous decision on 8 January 2019 in Henry Schein, Inc. vs. Archer & White Sales, Inc. (586 U.S., 139 S. Ct. 524 (2019)), the US Supreme Court confirmed that the United States is a pro-arbitration jurisdiction that will honor parties' agreements to arbitrate. Specifically, where an arbitration clause clearly delegates the decision of arbitrability to the arbitrators, courts should have no say in the matter, even if they perceive the argument in favor of arbitration as "wholly groundless." This decision provided clarity for potential disputants and was in line with prior Court precedent that prohibited courts from reviewing the merits of a dispute when delegated adequately to an arbitrator.   

The choice of arbitral seat determines the country whose courts will have supervisory jurisdiction over the arbitration. Courts at the seat will have the authority to address specific matters that concern the arbitration, such as ruling on (i) preliminary injunctions in aid of the arbitration; and (ii) any challenges to the arbitral award. Thus, it is highly advisable to select a seat in a country with modern, arbitration-friendly laws in place, with courts that are familiar with principles of international arbitration. The selection of a seat should not be confused with the venue for the arbitration. The arbitral seat is distinct from and does not need to correspond with, the venue where hearings physically take place. In the case of A4 vs. B4 ([2019] ADGMCFI 0007), A4, a company registered in Abu Dhabi, brought arbitration proceedings in the Abu Dhabi Global Market Courts under the rules of the London Court of International Arbitration ("LCIA") on 8 March 2018 against B4, who are also incorporated in Abu Dhabi before His Honour Justice Sir Andrew Smith. 

To know more about international Arbitration including arbitration in the UAE and arbitration in Dubai,Click here 


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