Arbitration

Arbitration is a key feature of doing business in a globalizing economy and is a main contributor to the development of transnational law. To fully understand why arbitration has reached this status, it is important to explain the main differences between arbitration and court proceedings and to underline the ways in which arbitration is an integral part of the process of globalization.

Arbitration can generally be defined as a mechanism for resolving disputes through one or more arbitrators empowered by the parties to decide on the matter in dispute by rendering an arbitral award. Over the years, arbitration has developed substantially in domestic and international commercial relations and is traditionally considered the preferred procedural way to settle disputes in cross-border transactions.

Unlike judges who are appointed by the state, arbitrators are appointed through contractual agreement between the parties in dispute. Arbitration thus allows the parties to have a say in the profile, nationality, and qualifications of the selected arbitrators. In cross-border transactions, this flexibility in the constitution of the arbitral tribunal gives the opportunity to establish a truly international and multi-jurisdictional arbitral panel detached from the respective national affiliations of the parties. Another feature of arbitration is the final and binding nature of the arbitral award, which is exposed to judicial challenge only on limited procedural grounds such as violation of public policy. In particular, arbitral awards are not meant to be subject to review of their merits and contents by national courts, thereby fostering security and speed in the dispute resolution mechanism. Finally, although court decisions are often accessible to the public at large via official reporting of court cases, arbitral awards are protected by confidentiality restrictions. This gives to the parties in dispute the assurance that their conflict situation will not be advertised to a wide audience.

In recent years, arbitration has been the subject of a certain level of criticism, mainly on the ground that it would be a costly method of resolving disputes or the time frame to obtain an enforceable arbitral award would be too long. As a result, substitutes to arbitration proceedings such as mediation, conciliation, adjudication, and other similar alternative dispute resolution mechanisms have been on the rise. Nevertheless, arbitration remains, to date, the preferred option for resolving international commercial disputes within a formal procedural framework.

Although the advantages of arbitration may explain why it has flourished as the natural dispute settlement method in international commercial relations, this would not have been possible without substantial support of the international legal community. A cornerstone of the global development of arbitration is the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. With the removal of many national obstacles to the recognition and enforcement of arbitral awards, the New York Convention has provided the necessary guarantees enabling arbitration to gain the confidence of global economic players. Further major international support has been granted by the United Nations Commission on International Trade Law and, more specifically, the release in 1985 of the Model Law on International Commercial Arbitration. Finally, under the auspices of the World Bank, the creation in 1985 of the International Centre for Settlement of Investment Disputes through the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States has demonstrated that arbitration is also a suitable forum for resolving cross-border disputes involving governmental organizations.

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