What is International Arbitration?

AM Editorial Team

Updated on:

International arbitration is a method of dispute resolution that is used to settle cross-border commercial, investment, and other conflicts outside the court system. 

Parties from different jurisdictions choose to resolve their legal disagreements through an arbitration process. This process involves one or more arbitrators who are selected by the parties to examine the facts and render a binding decision. 

This process is based on an arbitration agreement between the parties, which generally specifies the rules and procedures that will govern the arbitration proceedings.

This form of dispute resolution offers several benefits over litigation in national courts, such as neutrality, confidentiality, and the expertise of arbitrators in the relevant field. 

It is commonly employed in international business transactions where parties seek a private, impartial, and enforceable means of settling their disputes. 

Additionally, arbitration decisions, known as awards, are widely recognized and enforceable in most jurisdictions around the world thanks to various international treaties, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Given its growing relevance in international trade and investment, international arbitration has become a preferred dispute resolution mechanism among multinational corporations, states, and international institutions. 

The framework for international arbitration includes a variety of legal sources, such as international treaties, national arbitration laws, and rules provided by international arbitral institutions, which contribute to its efficiency and effectiveness in resolving disputes beyond the borders of any single nation.

Fundamentals of International Arbitration

International arbitration is a method of resolving disputes outside the courts, where parties to a contract agree to be bound by the decision of a private tribunal. 

The process is recognized for its neutrality, binding nature, and enforceability across borders, making it an attractive option for international business disputes.

Understanding Arbitration

International arbitration allows parties from different jurisdictions to resolve their disputes in a neutral forum. 

The essence of arbitration hinges on its binding nature; the arbitrators’ decisions, known as arbitral awards, are final and can be enforced in most countries around the world. 

The arbitral process is governed by a combination of the parties’ consent as expressed in the arbitration agreement, applicable procedural rules, and often the law of the place where the arbitration is seated.

The Arbitration Agreement

The arbitration agreement is a key document that outlines the parties’ commitment to arbitrate in lieu of seeking court intervention. 

This agreement must be precise regarding matters such as the scope of disputes subject to arbitration, the number of arbitrators to be appointed, and the method of their selection. 

It acts as a cornerstone of enforceability, as it demonstrates clear consent between parties to settle disputes through arbitration.

Role of Arbitral Institutions

Arbitral institutions play a pivotal role in administering the arbitral process, from the appointment of arbitrators to ensuring adherence to agreed procedural rules

Institutions such as the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) provide a framework that reinforces the neutral and professional handling of international disputes. 

These institutions aid in enhancing the enforceability of arbitral awards, thereby upholding the integrity of the arbitration process.

Legal Framework and Enforcement

International arbitration operates within a specialized legal framework that enables the resolution of disputes across national borders. 

The framework is defined by a mix of international treaties and national laws that establish the rules for the arbitration process and the enforcement of its outcomes. 

International Treaties and Conventions

A cornerstone of the international arbitration legal framework is the New York Convention, formally known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 

Ratified by over 160 countries, this international treaty mandates courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states. 

This broad international endorsement facilitates a cooperative international legal environment that supports the enforcement of arbitration agreements and awards.

Another noteworthy entity is the United Nations Commission on International Trade Law (UNCITRAL), which has developed the Model Law on International Commercial Arbitration, adopted by many countries to harmonize arbitration procedures and foster effective international economic relations. 

The UNCITRAL Model Law complements the New York Convention by providing a framework for the arbitral process while reinforcing the enforceability of arbitral awards.

The Enforcement of Awards

Enforcement of international arbitration awards is typically straightforward due to the New York Convention. 

When a party wins an award through arbitration, it can be enforced in any country that is a member of the convention, subject to limited exceptions. 

National courts play a crucial role as they must enforce international arbitration awards unless specific circumstances, prescribed by the convention, are met. These circumstances include a party’s incapacity or if the award deals with a matter not contemplated by or not falling within the terms of the submission to arbitration.

In practice, this means that the losing party in an arbitration can face enforcement actions in any of the many jurisdictions that have ratified the New York Convention. 

Compared to the enforcement of court judgments, which does not have a treaty as widely accepted as the New York Convention to facilitate cross-border enforceability, the enforcement of arbitral awards is typically less complicated and more predictable. 

This enhances arbitration’s appeal in international dispute resolution.

The legal principles of confidentiality, common law, and the law governing the contract also play supportive roles in the arbitral process. 

These principles ensure that the parties’ rights are adequately protected and that the proceedings adhere to internationally recognized legal standards. 

This cohesive legal framework, combining treaty obligations with national laws, underscores the strength and reliability of international arbitration as a method of resolving disputes outside of traditional litigation.