What is Arbitration?
In simple words, arbitration is a very straightforward method of resolving disputes in which the disputants agreed to submit their disputes to an individual whose decision they are ready to accept and would consider binding on them. This individual who acts as a private adjudicator is known as an arbitrator. The arbitrator listens to both parties, considers the facts, and the evidence and comes out with a final and binding decision.
The striking feature of arbitration is that the decision of the arbitrator is final and binding only because the parties have agreed it to be so and not because of the coercive power of the state, without involving reference to a court of law. But still being enforceable by the court of law if the losing party fails to implement the decision voluntarily.
To put in a nutshell what arbitration means, here is the definition given by professor Gary Born in his book International Arbitration: Law and Practise, which states “arbitration as the mechanism whereby parties agreed to submit a dispute (present or future) to a non-governmental decision-maker, selected by or for the parties, to render a binding decision finally resolving the dispute in accordance with adjudicatory procedures affording the parties an opportunity to be heard.”
Arbitration is now the prime method of resolving international disputes. This is perhaps a consequence of the increase in globalisation and world trade and investments. This has led to harmonising of arbitration practises which are used by international arbitration practitioners irrespective of which country they practise in.
In order to bring uniformity in arbitration practise world-over, the United Nations Commission on International Trade Law (UNCITRAL) Model Law serves as a model on which numerous nations have based their national arbitration laws. These national laws then support the institutional rules. For example, the arbitration rules of the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), or Indian Dispute Resolution Centre (IDRC).
All such rules and laws related to arbitration are developed with the objective of maximising the effectiveness of the process of arbitration as well as minimising the judicial intervention in the arbitration process except when it is required for supporting arbitration agreements and enforcing arbitral awards.
To read about the benefits of arbitration, click here.
Conduct of an Arbitration and the Applicable Laws
An arbitral proceeding is not like a court proceeding as it lacks the formality which is involved in a court. The arbitrator, the parties and the counsels for the parties sit together at the same level to conduct the proceedings in a setup that is akin to a business meeting. The parties are free to choose the procedures to be followed. The parties can even dispense the disclosure of documents or the evidence of witnesses or even the hearing itself if they wish so. Thus, the process of arbitration offers great autonomy to the parties but the process of arbitration is successful only because of the support of the public system of national laws, the court system, and international treaties.
The laws which govern arbitration can be broadly divided into 4 categories First, the law that governs the international recognition and enforcement of the agreement to arbitrate. Second, the lex arbitri i.e., the law that governs the actual arbitration proceedings. Third, the law or the set of rules that the arbitral tribunal must apply to the substantive matters or issues in the dispute. This is the most important law, and it is generally called the applicable law or the governing law. Fourth, the law that governs the international recognition and enforcement of the arbitral award.
Lex arbitri or the law which governs the arbitral proceedings is generally the law of the nation that serves as the seat of arbitration. Lex arbitri may also govern the substantive matters of the arbitration but not necessarily so. The law which governs the substantive issues may be a different system of law altogether as per the mutual agreement of the parties. For example, an arbitral tribunal sitting in India, governed or regulated by Indian law as the law of the place of arbitration, may be required to apply the law of the UK as the applicable or substantive law. This is generally chosen by the parties in their contract.
The parties, or in their default the arbitral tribunal on behalf of the parties, may choose any system of law or even a blend of national laws, public international law, or any other legal system. In fact, if the parties agree, the arbitrators can even determine the dispute on the basis of what they consider to be fair and equitable or ex aequo et bono.
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