Business Law Argumentative Essay Example

the amendment of pleadings, the admissibility of evidence, and the mode of presenting legal argument and factual material. Moreover, arbitration generally lacks various characteristics that are common in U.S. litigation, including broad pre-trial discovery, summary judgment procedures, and appellate review.

International commercial arbitration is similar in important respects to domestic arbitration. As in domestic matters, international arbitration is a consensual means of dispute-resolution, by a non-governmental decision-maker, that produces a legally binding and enforceable ruling. In addition, however, international arbitration has several characteristics that distinguish it from domestic arbitration.

Most importantly, international arbitration is often designed and accepted particularly to assure parties from different jurisdiction that their disputes will be resolved neutrally. Among other things, the parties seek a neutral decision-maker (detached from the governmental institutions and cultural biases of either party) applying internationally neutral procedural rules (rather than a particular national legal regime). In addition, international arbitration is frequently regarded as a means of mitigating the peculiar uncertainties of transnational litigation-which can include protracted jurisdictional disputes and expensive parallel proceedings-by designating a single, exclusive dispute resolution mechanism for the parties' disagreements. Moreover, international arbitration is often seen as a means of obtaining an award that is enforceable in diverse jurisdictions.

Although international arbitration is a consensual means of dispute resolution, it has binding effect only by virtue of a complex framework of national and international law. As we will see, international commercial arbitration is subject to a specialized legal regime. International conventions, national arbitration legislation, and institutional arbitration rules provide a sophisticated legal foundation for international arbitrations.

On the most universal level, the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention")

has been ratified by virtually all significant trading states. The Convention obliges member states to recognize and enforce both international commercial arbitration agreements and awards, subject to limited exceptions. Other international conventions impose comparable obligations on member states.

In addition, most developed trading nations, and many other states, have enacted legislation that permits enforcement of arbitration agreements and awards and judicial support of the arbitration process. National laws in such states recognize the capacity of parties to enter into binding agreements to arbitrate future commercial disputes, provide mechanisms for the enforcement of such arbitration agreements (through orders to stay litigation or to compel arbitration), and require the recognition and enforcement of arbitration awards. In addition, modern arbitration legislation limits the power of national courts to interfere in the arbitration process, either when proceedings are pending or in reviewing ultimate awards. In some cases, arbitration statutes permit limited judicial assistance to the arbitral process-such as selecting arbitrators and arbitral forums or enforcing a tribunal's discovery orders or provisional relief.

In recent years, there have been efforts to harmonize national laws relating to international arbitration. The "UNCITRAL" (infra 38-39) Model Law on International Commercial Arbitration is the leading example; about ten nations (not including the United States) have adopted the law to date, and others (including the United States) are considering it. Similarly, national and international bar associations have produced rules or codes of conduct dealing with subjects such as evidence-taking and the ethics of arbitrators.

Much international commercial arbitration occurs pursuant to institutional arbitration rules. The leading international arbitration institutions are the International Chamber of Commerce, the American Arbitration Association, and the London Court of International Arbitration, each of

which has adopted its own set of rules governing the procedural aspects of arbitration. All of these institutions, as well as another dozen or so less-widely known bodies, supervise arbitrations when parties agree to dispute-resolution under its auspices. In addition, the UNCITRAL Commercial Arbitration Rules are widely used in so-called ad hoc arbitrations.

International commercial arbitration is consensual arbitration only occurs pursuant to an arbitration agreement between the parties. Most arbitration agreements are included as standard clauses in commercial contracts and provide for the arbitration of any dispute that may arise in the future between the parties within a defined category. It is also possible, although much less common, for parties to an existing dispute to agree to settle their disagreement through arbitration.

Arbitration agreements can, and should, address a number of potentially significant issues. "These include the situs of the arbitration, the arbitration rules, the method of appointing the arbitrators and an appointing authority, as well as the number of arbitrators, the applicable law, and the language of the arbitration." (infra 44-45) A carefully-drafted arbitration agreement can address each of these and other issues, and provide the parties with a relatively efficient dispute resolution mechanism tailored to their particular needs. A poorly-drafted arbitration agreement plants the seeds for disputes over jurisdiction and procedure, and may be unenforceable.

Institutional arbitration rules and national law (including U.S. law) widely recognize the principle that arbitration agreements are "separable" from the underlying contract in which they appear. According to the reparability doc-trine, an arbitration clause is a district and independent agreement, supported by the separate consideration of the parties' exchange of promises to arbitrate. As a consequence, challenges to the existence,

validity, or legality of the underlying agreement generally do not affect the validity of the arbitration agreement. The doctrine plays an important role in U.S. and other courts in limiting judicial interference in the arbitration process.

Finally, under U.S. and most other national laws, certain categories of disputes or claims are "non-arbitrable" - not capable of settlement by arbitration (as opposed to by national courts). The categories of claims that are non-arbitrable vary from country to country, but generally involve claims under statutory protections or concerning matters of public policy.

An Overview of the Advantages and Disadvantages

By most appearances, the popularity of arbitration as a means for resolving international commercial disputes has increased significantly over the past several decades. Despite its apparent popularity, international arbitration has both strengths and shortcomings as a method for resolving international commercial disputes.

First, international arbitration is often perceived as a means to obtain a genuinely neutral decision-maker. International disputes inevitably involve the risk of litigation before a national court, that may be biased, back-logged, or unattractive for some other reason. Moreover, outside an unfortunately limited number of industrialized nations, local court systems simply lack the competence, resources, and traditions of evenhandedness to satisfactorily resolve many international commercial disputes. International arbitration offers a theoretically competent decision-maker satisfactory to the parties, who is, in principle, unattached to either party or any national or international regulatory authority. On the other hand, private arbitrators can have financial, personal, or professional relations with one party (or its counsel), which can, in the eyes of some observers, pose the risk of even greater partiality than the favoritism of local courts.

Second, a carefully drafted arbitration clause generally permits the

consolidation of disputes between the parties in a single forum pursuant to an agreement that most national courts are bound by treaty to enforce. "This avoids the expense and uncertainty of multiple judicial proceedings in different national courts." (Kerr) On the other hand, incomplete or otherwise defective arbitration clauses can result in multiple proceedings in which the scope or enforceability of the provision, as well as the merits of the parties' dispute, are litigated; the difficulties in constructing an effective arbitration agreement and regime are particularly significant in multi-party disputes. And even well-drafted arbitration agreements often cannot foreclose the expense and delay of a litigant determined to confound the arbitral process. Moreover, a carefully-drafted forum selection clause choosing a national court to resolve all the parties' disputes may achieve many of the benefits of an arbitration clause.

Third, it is generally (but not always) true that arbitration agreements and arbitral awards are more easily and reliably enforced in foreign states than forum selection clauses or foreign court judgments. As described below, some 90 nations are signatories to the New York Convention, which obliges contracting states to enforce arbitration agreements and awards (subject to specified, limited exceptions).

In contrast, there are no world-wide treaties relating to either forum selection agreements or judicial judgments-although bilateral treaties and regional agreements like the Brussels Convention are significant. The perceived ease of enforceability of arbitral awards has contributed to fairly substantial voluntary compliance with arbitral awards, although there is no empirical data comparing such compliance to judicial judgments. "In some developing and other countries, there is a widespread perception that international commercial arbitration has been developed by, and is biased towards, Western

commercial interests." (Kassis) As a consequence, national law in many countries (including much of Latin America) has been hostile towards international arbitration, and can pose significant obstacles to the effective enforcement of international arbitration agreements and awards.

Fourth, arbitration tends to be procedurally less formal and rigid than litigation in national courts. As a result, parties have greater freedom to agree on appropriate procedural rules and timetables, select technically expert decision-makers, involve corporate management in dispute-resolution, and the like. "On the other hand, the lack of a detailed procedural code and a sovereign decision-maker may permit party misconduct or create opportunities for an even greater range of procedural disputes between the parties." (Higgins, Brown & Roach)

Fifth, arbitration typically involves less extensive discovery than is common in litigation in U.S. courts. This is generally attractive because of the attendant reduction in expense, delay, and disclosure of business secrets. "Of course, in particular disputes, one party may desire broad discovery rights, rather than the customarily more narrow rights available in arbitration." (infra 82)

Sixth, international arbitration is usually confidential-as to both evidentiary proceedings and final award. This further protects business secrets and can facilitate settlement by reducing opportunities and incentives for public posturing.

Seventh, the existence of an arbitration clause and a workable, predictable arbitral tribunal may create incentives for settlement or amicable conciliation. The cooperative elements that are required to constitute a tribunal, agree upon a procedural framework, and the like can sometimes help foster a climate conducive to settlement. Indeed, parties sometimes agree to conciliation (rather than binding arbitration) or to arbitration ex aequo et bono (not based on the strict application of law), in a deliberate effort

to foster settlement. On the other hand, where relations are irrevocably soured, the need for some measure of cooperation in conducting the arbitration can permit party misconduct to greatly impede the arbitral proceedings.

Finally, arbitration has long been lauded as a prompt, inexpensive means of dispute resolution. That can sometimes be the case, but international arbitration is also not infrequently criticized as both slow and expensive. The difficulties in scheduling hearing dates (with busy arbitrators, counsel, and clients in different countries), the need to agree upon most procedural steps, and other factors often produce a fairly stately pace. Likewise, even its proponents acknowledge that "International arbitration is an expensive process." (Wetter) Both private arbitrators (unlike judges) and arbitral institutions (unlike courts) must be paid by the parties. And there is a wide-spread perception that some institutional fees, charged for "administrative" services, are unrealistically high and otherwise one-side.

Given (or perhaps despite) this background, it is not difficult to find enthusiastic proponents of the arbitral process:

• In the realm of international commercial transactions, arbitration has become the preferred method of dispute resolution. Arbitration is preferred over judicial methods of dispute resolution because the parties have considerable freedom and flexibility with regard to choice of arbitrators, location of the arbitration, procedural rules for the arbitration, and the substantive law that will govern the relationship and rights of the parties. Equally vigorous are some critics, including those who regard arbitration as "the slower, more expensive alternative," (Lyons) or who conclude that "arbitration sometimes involves perils that even surpass the 'perils of the seas." (Layton)
• In fact, the truth is less clear-cut and lies somewhere between these extremes: "The more enthusiastic
  

of those sponsors have thought of arbitration as a universal panacea. We doubt whether it will cure corns or bring general beatitude. Few panaceas work as well as advertised. At bottom, if generalizations must be made, international arbitration is not much different from democracy; it is nowhere close to ideal, but it is generally better than the alternatives. To those who have experienced it, litigation of complex international disputes in national courts is often distinctly unappealing. Despite the frustrating procedural complexities and other uncertainties, arbitration often offers the least ineffective way to finally settle the contentious disputes that inevitably arise when international transactions go away.

An Overview of Leading International Arbitration

International arbitration can be either "institutional" or "ad boc." A number of organizations, located in different countries, provide institutional arbitration services. The best-known international arbitration institutions are the International Chamber of Commerce ("ICC"), the American Arbitration Association ("AAA"), and the London Court of International Arbitration ("LCIA"). Each of these organizations is described in detail below.

These (and other) arbitral institutions have promulgated sets of procedural rules that apply where parties have agreed to arbitration pursuant to such rules. In addition, each arbitral institution has a staff (with the size varying significantly from one institution to another) and a decision-making body (or "appointing authority"). Among other things, institutional rules set out the basic procedural framework and timetable for the arbitration process. In addition, such rules typically authorize the host arbitral institution to select arbitrators in particular disputes, to resolve challenges to arbitrators, to designate the place of arbitration, and (sometimes) to review the arbitrator's awards to reduce the risk of un- enforceability on formal grounds. Of course, arbitral

institutions charge an administrative fee, which can sometimes be substantial, for rendering these various services; this fee is in addition to compensation paid by the parties to the arbitrators, which is often also set by institutional rules.

It is fundamental that arbitral institutions themselves do not arbitrate the merits of the parties' dispute. This is the responsibility of the particular individuals selected by the parties or by the institution as arbitrators. Arbitrators virtually never are employees of the arbitral institution, but are qualified private persons selected by the parties or the orbital institution. The arbitral institution confines itself to the task of an "appointing authority," which chooses the arbitrators if the parties cannot agree.

Ad hoc arbitration is not conducted under the auspices or supervision of an arbitral institution. Instead, private parties simply select an arbitrator or arbitrators, who resolve the dispute without institutional supervision. The parties will sometimes also select a preexisting set of procedural rules designed to govern ad hoc arbitrations. The United Nations Commission on International Trade Law ("UNCITRAL") has published a commonly used set of such rules. Less frequently, the parties' arbitration agreement will attempt to set forth the relevant procedural rules or the arbitral panel will independently formulate a special set of procedural rules, tailored to the specific needs of the parties and their dispute. In either ad hoc or institutional arbitration, parties usually will (and certainly should) designate an "appointing authority," that will select the arbitrators(s) if the parties cannot agree.

Both institutional and ad hoc arbitration have strengths. Institutional arbitration is conducted according to a standing set of procedural rules and supervised, to a greater or lesser extent, by a professional

staff. This reduces the risk of procedural breakdowns, particularly at the beginning of the arbitral process, and technical defects in the arbitral award. Similarly, the institution lends its standing to any award that is rendered, which enhances the likelihood of voluntary compliance and judicial enforcement.

On the other hand, ad hob arbitration is typically more flexible and less expensive (since it avoids often substantial institutional fees). Moreover, the growing size and sophistication of the international arbitration bar, and the international legal framework for commercial arbitration, has reduced somewhat the benefits of institutional arbitrations. "Nonetheless, many experienced international practitioners prefer the more structured, predictable character of institutional arbitration, at least in the absence of unusual circumstances arguing for an ad hoc approach." (Von Mehren)

Different arbitral institutions typically offer somewhat different "products." The three leading international arbitral institutions are the ICC, the AAA, and the LCIA. Each is briefly described below.

International Chamber of Commerce International Court of Arbitration

The ICC's International Court of Arbitration was historically regarded as the world's leading international arbitral institution. In recent years, the ICC's annual intake of new cases has varied between 300 and 350 filings. For example, in 1991 and 1992, respectively, the ICC received 333 and 337 requests for arbitration.

Based in Paris, and founded in 1919, the ICC is a broad-based, non-governmental institution active in international issues affecting businesses. The ICC draws its membership from business organizations and individual companies in more than 100 nations; in approximately 60 nations, "National Committees" have been organized to coordinate membership. Beginning with a European and North American focus, the ICC now includes participants from Asia, the Middle East, Africa, and elsewhere.

Among other things, the ICC

undertakes studies of particular business and legal issues (generally with the objective of promoting world trade and harmonizing international trade practice) and represents the business community's view in international organizations and other for a. The ICC has issued significant studies on such topics as the extraterritorial application of national laws, force majeure, letter of credit terms, and the like. The ICC also offers a variety of dispute-resolution facilities, including technical experts, conciliation and mediation, and emergency referees.

Most important for present purposes, the ICC also offers-under the auspices of its International Court of Arbitration-supervised and binding dispute resolution through arbitration. The International Court of Arbitration was established in 1923. It presently consists of some 60 members, from nearly as many countries. It meets in plenary session once each month, with smaller administrative committee meetings three times each months. The Court is assisted in these functions by a Secretariat, with its own 32-person legal and administrative staff, including a Secretary General, a General Counsel, and a number of staff attorneys.

"The International Court of Arbitration has promulgated the ICC Rules of Conciliation and Arbitration, most recently revised in 1975 and in 1988." (Cohn, The current ICC Rules are reproduced at Appendix J.) The Rules govern the conduct of arbitrations under the control of individual arbitral tribunals.

The ICC's International Court of Arbitration is not in fact a "court," and it does not itself decide disputes or act as an arbitrator. Rather, the Court is an administrative committee that acts in a supervisory and appointing capacity under the ICC Rules. The ICC International Court of arbitration's four most significant functions under the Rules are

• to appoint arbitrators when the parties
  

are not able to agree on the identity of an arbitrator;

Under the ICC Rules, the International Court of Arbitration exercises a more detailed supervisory function over ongoing arbitrations than other leading arbitral institutions. In particular, the ICC's scrutiny of terms of reference and arbitral awards is unique, as compared to the degree of supervision exercised by most other arbitral institutions, which has been both praised and criticized.

International Efforts at Harmonization of Arbitration Statutes and Rules

UNCITRAL Model Law on International Commercial Arbitration. A leading effort towards harmonization in the field of international commercial arbitration is the United Nations Commission on International Trade Law ("UNCITRAL") Model Law on International Commercial Arbitration. The UNCITRAL Model Law was adopted by a resolution of UNCITRAL in Vienna in 1985 and by a U.N. General Assembly resolution later the same year. The Model Law is designed to be implemented by national legislatures, with the objective of further harmonizing the treatment of international commercial arbitration in different countries. The Model Law is reproduced as Appendix F.

The Model Law, containing 36 articles, deals comprehensively with the issues that arise in national courts in connection with arbitration. Among other things, the law contains provisions concerning the enforcement of arbitration agreements (Articles 7-9), appointment of and

challenges to arbitrators (Articles 10-15), jurisdiction of arbitrators (Article 16), provisional measures (Article 17), conduct of the arbitral proceedings (including languages, situs, and procedures) (Article 18-26), awards (Articles 29-33), setting aside or vacating awards (Article 34), and recognition and enforcement of awards, including bases for non recognition (Article 35-36).

The Model Law represents a significant further step, beyond the New York Convention, towards the development of a stable and predictable international legal framework for commercial arbitration. Like the New York Convention, the Model Law's efficacy is ultimately dependent upon its interpretation and application by national courts. But the law goes beyond the Convention by prescribing in significantly greater detail the legal framework for international arbitration, by clarifying points of ambiguity or disagreement under the Convention, and by establishing directly applicable national legislation.

In particular, the Model Law makes clear the grounds for vacating international arbitral awards and defines the scope of national court interference in, and assistance to, the arbitral process. At least as important, the Model Law has set the agenda for reform of arbitration statutes, in nations like England and Germany, even where it has not been adopted.

The Model Law has been adopted by approximately ten nations, including Australia, Bermuda, Bulgaria, Canada, Cyprus, Hong Kong, Mexico, Nigeria, the Russian Federation, Scotland, and Tunisia. It has also been adopted by several U.S. states, including California, Connecticut, Oregon, and Texas. Other nations, including the United States, Germany, and New Zealand are actively considering its adoption.

Even more significant to the development of the international arbitral regime than the UNCITRAL Model Law are the UNCITRAL Arbitration Rules. The UNCITRAL Rules were promulgated by Resolution 31/98, adopted by the General

Assembly of the United Nations on December 15, 1976.

The UNCITRAL Arbitration Rules were specifically designed for use in ad hoc arbitrations. When they were adopted in 1976 the UNCITRAL Rules were the only set of rules available specifically for that purpose, although alternatives now exist. Under the Rules, the Secretary General of the Permanent Court of Arbitration serves as appointing authority, unless the parties agree to the contrary.

The objective of the UNCITRAL Rules was to create a relatively predictable and stable procedural framework for international arbitrations without stifling the informal and flexible character of such dispute resolution mechanisms. The Rules aimed to satisfy by common law and civil law jurisdictions, as well as capital-importing, capital exporting and other nations'. Foreign states, which generally will have supported the Rules in the United Nations, often find it difficult to object to their use.

The UNCITRAL Rules have contributed significantly to the harmonization of international arbitration procedures. That is reflected in party by the readiness of the AAA and the IACAC to base the AAA International Rules and IACAC Rules substantially on the UNCITRAL Rules. Other institutional rules, including the LCIA Rules, have also drawn heavily on the UNCITRAL Rules.

IBA Supplementary Rules of Evidence. The International Bar Association has adopted the "Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration." The Rules attempt to provide a blend of civil law and common law approaches to the subjects of discovery and evidentiary presentations in arbitration. They are excerpted in Appendix L, and discussed elsewhere. The Rules are intended principally for contractual incorporation into the parties' arbitration agreement, but they are also sometimes the basis for an

arbitral tribunal's procedural directions.

ABA/AAA and IBA Code of Arbitrators' Ethics. In 1980, a joint committee of the American Bar Association and American Arbitration Association adopted the ABA/AAA Code of Ethics. The Code sought to provide ethical guidelines, focussing particularly on issues of bias and partiality, for arbitrators. Consistent with historic practice in the United States, the Code set different ethical standards for party-appointed and "neutral" arbitrators. In 1990, however, the American Bar Association recommended amendment of the Code of Ethics to provide for the neutrality and impartiality of all members of the arbitral panel (unless otherwise agreed).

In 1987, the International Bar Association adopted "Ethics for International Arbitration," excepted in Appendix M. Derived in substantial part from the ABA/AAA Code, the IBA effort sought to establish uniform ethical standards for application to international arbitrators. Unlike the original ABA/AAA Code, the IBA Ethics applied the same standards to party-appointed and neutral arbitrators. The IBA Ethics are influential guidelines in international practice, although reform efforts are underway in Europe. Sources also viewed for Information About International Arbitration.

ICCA Yearbook of Commercial Arbitration

The Yearbook of Commercial Arbitration is published annually by the International Council for Commercial Arbitration. The Yearbook contains excerpts of arbitration awards, national legislative developments, judicial decisions, and other materials relevant to international arbitration. The Yearbook is available from Kluwer Law and Taxation Publishers and is an invaluable reference tool. In addition to its role as an important source of otherwise confidential arbitral awards, the yearbook catalogues materials under the various articles of the New York Convention and reports on significant national legislative developments.

Mealey's International Arbitration Report

Since 1986, Mealey Publications has published a monthly collection of recent judicial

decisions and arbitral awards. The International Arbitration Report is a source of timely information and provides full-text copies of some significant arbitral awards and judicial decisions.

"Arbitration International" is a quarterly journal, published since 1985 by the Chartered Institute of Arbitrators in London. It provides sophisticated commentary on international commercial arbitration, with a particular focus on Europe.

Journal du Droil International (Clunet)

Published in French, the journal du Droir International publishes excerpts and summaries of arbitral awards. The Journal is a significant source of extracts of otherwise unavailable arbitral awards.

Collection of ICC Arbitral Awards

A collection of ICC arbitral awards rendered between 1974 and 1985 was recently published by two leading practitioners and academics, Sigvard Jarvin and Yves Derains. The collection includes excerpts and summaries of approximately 150 ICC arbitral awards, in both French and English. Most of the awards were previously published in the yearbook of Commercial Arbitration or Journal du Droit International (Clunet), but the collection is a convenient reference source. A second collection of awards was published in 1993.

Published by the American Society of International Law, the International Legal Materials are published six times each year. They contain a wide range of international legal documents, and do not focus specifically on arbitration. They are, however, a useful source of significant developments-legislative, judicial, and otherwise-in the arbitration field.

Bibliography

1.  A. Redfern & Q. M. Hunter, Law & Practice of International Commercial Arbitration 3, (2nd ed., 1991).
2. Alberto-Culver Scherk, Article 417-506, International Arbitration.(Internet)
3. Higgins, Brown, & Roach, "Pitfalls of International Commercial Arbitration," (1980).
4. J. Cohn, International Chamber of Commerce Arbitration, (2nd ed., 1990).
5. L. Kassis, International Arbitration, (1989).
6. Layton, "The Noose Draws tighter," International Law, (1979).
7. M. Lyons, "The
   

slower, more expensive alternative," (3rd ed., 1985).