Open Access Research Article
COMMERCIAL ARBITRATION AND UNCITRAL MODEL LAW
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AUTHORED BY
- KOSTUBH CHANDELA
INTRODUCTION
Commercial arbitration is of several
forms of dispute resolution for commercial agreements. The use of arbitration
has increased along with the growth of international trade and commerce and the
accompanying disputes springing from these pursuits. In its broadest sense,
arbitration is a vehicle of dispute resolution in which parties to a contract
select a neutral arbitrator (or a panel of arbitrators) to present their
dispute for a legally binding ruling. Arbitration is often selected for the
reasons of confidentiality, speed, enforceability of arbitral awards, and to
eliminate the uncertainties in the choice of arbitrator and forum. Parties from
different national origins may also be reluctant to accept national court
litigation with the potential for national bias. Arbitration offers parties
more control over how proceedings will be conducted. Arbitration awards are,
with rare exception, final and binding.
Commercial arbitration has many
different issues and the researcher need to have access to numerous resources
to make informed decisions. Since no individual format provides exhaustive
coverage of commercial arbitration resources, both print and electronic
resources are presented in this guide.[1]
I.
Arbitration
Arbitration is derived from the
nomenclature of the Roman Law, and means and arrangement for investigation and
determination of a matter or matters of difference between contending parties
by one or more unofficial persons chosen by the parties. It is the settlement
of disputes, by the decision not of a regularly constituted tribunal, or
ordinary court of law, but of one or more persons voluntarily chosen by the
parties, who by reason of the confidence reposed in them find favour in the eye
of litigants. Arbitration is essentially a private resolution of disputes by
the parties concerned virtually appointing their own judge. They are allowed
substantial leeway in determining the procedure to be employed in deciding the
matter concerned often even the law applicable. An arbitrator, therefore
constitutes a tribunal set up by the parties themselves, not as part of any
mechanism established by the state or by a law, to adjudicate disputes. Though
proceedings in arbitration are required to be organized on some systematic
basis, there is a marked departure from the conventional judicial process in
several aspects like hearing the parties concerned as well as deciding the
dispute itself.[2]
Arbitration means any arbitration[3]
whether or not administered by permanent Arbitral Institution. An Abritration
is a reference to the decision of one or more persons of a particular matter in
difference between parties. It is the submitting of a disputed matter to the
judgement of one or more persons called arbitrators.
II.
Disputes or difference
If there is to be a valid arbitration
there must be a dispute or difference between the parties. Every dispute is a
conflict and as such dispute settlement process vary with the nature of
conflict.
Abuert says that the solution of a
conflict may be brought about in two major ways it may be either through
(i) Bargaining compromise.
(ii)
Or
through application of law to facts.
There is however another kind of
conflict which Aubert call dissensus or conflict of values. Such a conflict can
not be compromised because scarifices and advantages can not be quantified.
When a conflict of interest is handed over to law it acquires the character of
conflict of values. This involves disagreement regarding certain facts or
concerning the norms which apply to such facts or both. This is necessary so
that a solution could be found by an outsider who knows the rules of evidence
and perceive the facts through them and can handle the normative order.
Therefore, in case of conflict of value only one of the parties can succeed.
The spirit-the ethos has out of
commercial[4]
arbitration. It has been transformed into what Sir Michael Kerr has
characterized as “International disputology”.[5]
III.
Present and Future Disputes
An agreement to arbitrate represented
a compromise on the part of the parties; and this is reflected in the language
which refers to a submission agreement as a compromise and to an arbitration
clause as a clause compromiser. An arbitration clause is like a blank cheque
which may be cashed at a future (as yet known) date.
Generally National Laws are reluctant
to give full effect to the future disputes but model law given full effect to
both types of disputes whether existing and future disputes.
IV.
Commercial Arbitration
Commercial Arbitration must have
existed since the dawn of commerce. All trade potentially involves disputes,
and successful trade must have a means of dispute resolution other than force.
From the start, it must have involved a neutral determination, tacit or
otherwise, to abide by the result, backed by some kind of sanction. It must
have taken many forms with mediation[6],
no doubt merging into adjudication.
Commercial arbitration is
distinguished from other types of arbitration in as much as the commercial
arbitrations derive their authority solely from contract, they resolve the
whole dispute and, generally, do so according to law. There is a major
exception to the rule that a commercial arbitrator should decide according to
law. Sometime merchants insert clauses[7] in
arbitration agreements which authorize arbitrators to resolve disputers ex
aequo et bono or as amicable compositors.
In the former case the arbitrators
may depart from strict law and decide the case according to equity and good
sense. In the latter case, the arbitrator will use its good officers to
engineer in an amicable settlement. Strictly speaking, amicable settlement is
not a determination but the conclusion of a new to settle the dispute. Some
national laws expressly recognize this type of arbitration.
V.
International
Commercial arbitration
What makes commercial arbitration
international? This questions is important because there are international
conventions which establish special rules for facilitating commercial
arbitration and for the recognition and enforcement of international arbitral awards.
There are two major conventions[8]
namely: the convention on the recognition and Enforcement of Foregin Arbitral
Awards (commonly known as New York Convention, 1958) and the UNCITRAL Model Law
on Commercial arbitration. The New York Convention is restricted to the
imposition of duties on state parties to recognize and enforce foreign arbitral
awards. The UNCITRAL MODEL LAW is more extensive code. The New York Convention,
does not actually use the term „International? but applies its provisions to „arbitral
awards made in the territory of a state other than the state where the
recognition and enforcement of such awards was „Sought? and to „arbitral awards
not considered as domestic awards in the state where their recognition and
enforcement are sought?. The UNCITRAL Model Law gives a more detailed account
of what constitutes „International Arbitration?.
Under Article 1(3), an arbitration is
international if at the time of the conclusion of the agreement: the parties
have their place of business in the same state, the arbitration will yet be
international if the designated place of arbitration, the place where a
substantial part of the commercial obligations have to be performed or the
place with which the subject matter of the dispute is most closely agreed that
the subject matter of the arbitration agreement relates to more than one
country. International commercial arbitration12 means an arbitration
relating to disputes arising out of legal relationships, whether contractual or
not, considered as commercial under the law in force in India and where at
least one of the parties is
(i) An individual who is a national of,
or habitually resident in, any country other than India.
(ii)
A
body corporate which is incorporated in any country other than India.
(iii)
A
company or an association[9] or
a body of individuals whose central management and control is exercised in any
country other than India.
(iv) The government of foreign country.
In fact, the world of commercial
arbitration is not premised on its participants possessing any legal
qualifications: it is only in four out of the one hundred and twenty five New
York Convention countries that there is an express legal requirement that an
arbitrator must be a qualified lawyer.
New York Convention, 1958, UNCITRAL
MODEL LAW 1985, are all silent on the arbitrators qualifications: the only
requirement contained in the UNCITRAL Model Law is that the person appointed
(as arbitrator) should be independent and impartial.
In principle, the arbitrators can
only exercise[10] such
powers as the parties by their agreement to arbitrate bestow upon them. These
powers are supplemented and added by the law relating to arbitration (This is
the law governing the contract or even which can be chosen by the parties
concerned). The approach of the model law is also towards recognizing the
freedom of the parties to determine, by reference to an existing set of
arbitration rules or by an adhoc agreement, the procedure to be
followed, subject to fundamental requirements and justice. In case the
parties have not used their freedom to lay down the powers of the arbitrators,
model laws provisions can be used to invest the arbitrators with requisite
authority.
Several third world states were
suspicious of international investment arbitration because it has given rise to
a system of competing norms which favour the foreign investor to the detriment
of developing[11] states.
VI.
ARBITRATION-ELECTRONIC FORMATION OF
CONTRACT
Due to incapability of traditional
law, electronic formation of contract became inevitable. The main features of
the paper based regime “writing”, “signature”, and “original”. Writing given
validity signature identifies signer and authenticity of document.
“Original” ensures integrity.
Enforceability, authenticity and integrity of a paper document can also be
achieved by an electronic document. The Information Technology Act, 2000,
(which is based on UNCITRAL Model Law) provides legal recognition to electronic
records and electronic signatures, their use, retention attribution and
security. A message bearing digital signature, verified by a public key listed
in the valid certificate is as valid, effective and enforceable as if the
message had been written on paper and signed by hand.
In respect of all functions of paper
writing, signature and original electronic records can provide the same level
of security as paper.
The Information technology Act 2000
gives legal recognition to data message, corresponding to paper documents[12]
so that the message could serve the same function. Section4 (writing), section
5 (signature), and section 7(original).
The validity of the electronic
contract can not be questioned in the absence of a paper document, if the
agreement is enforceable in law. So we can say that some of the features of the
Contract Act, 1872, are adopted to the new environment of paperless
communication.
VII.
CHOOSING BETWEEN ARBITRATION AND
LITIGATION
The possibility of a legal dispute is
never absent in international trade transactions. The reasonable
exporter, in spite of the care he has taken in the preparation of the contract
of sale, has to contemplate acting against the buyer who is in breach of
contract.
Ideally, the exporter should consider
this issue before entering into the contract of sale. When he has made his
choice from the procedures available for dispute resolution, he should insist
that the term giving full expression to the chosen procedure is inserted into
the contract. It is common experience that agreement on this point is easier
during the course of negotiation than that when a dispute has arisen, as in the
latter situation. The aggrieved [13]part
has no means of compelling the other to agree to an extra judicial procedure of
dispute settlement.
If the exporter decided in favour of
dispute resolution out of court, he may insert into the contract of sale an
alternative dispute resolution (ADR) clause which embraces mediation and
conciliation or an arbitration clause.
VIII.
DISTINCTION BETWEEN INTERNATIONAL AND DOMESTIC
ARBITRATION
It is important to make a distinction
between International[14]
Arbitration and Domestic Arbitration. Although this module does discuss some
concepts that are common to both types of arbitration, the essential thrust is
to discuss commercial arbitration, since it is only this facet of arbitration
that is involved in the resolution of disputes concerning international trade.
(1)
If
the nature of the dispute and arbitration involve the interests of a foreign
trade, it will be treated as a foreign arbitration. The Delhi High Court in GAIL
v. Spie Capag held that an arbitration agreement, which possess[15]
the flavour of international trade and commerce, would be within the realm of
the law relating to foreign arbitrations, even in fact a domestic award and not
a foreign award.
This was widely considered to be a
progressive judgement, since it brought into the realm of commercial
arbitration law many more arbitration agreements, which would otherwise have
been dealt with under the domestic law.
Conclusion
The concept of parties
settling their dispute in a binding manner by reference to a person or persons
of their choice or private tribunals was well know to ancient and medieval
India. Appeals were also often provided against the decisions of such persons
or tribunals to the courts of judge appointed by the king and ultimately to the
king himself. However, the law or arbitration as is known to modern India owes
its elaboration, in phases, to the British rule of India. Through a series of
what were know as Regulations framed by the East India Company in exercise of
the power vested in it by the British government, beginning with the Bengal
Regulations of 1772, the court in different parts of British India were
empowered to refer, either with the consent of the parties or at the instance
of the parties, certain suites to arbitration. The successive Civil Procedure
Codes enacted in 1859, 1877 and 1882, which codified the procedure of civil
courts, dealt with both arbitration between parties to a suit and arbitration
without the Intervention[16]
of a court. The law relating to contracts also simultaneously developed certain
principals of relevance to arbitration. Ordinarily, all disputes arising under
a contract have to be settled by courts established by the state. Section 28 of
the contract Act, 1872 provides that every agreement, by which any party
thereto is restricted absolutely from enforcing his rights under or in respect
of any contract., by the usual legal proceeding in the ordinarily tribunals, or
which limits the time within which he may thus enforce his rights, is void to
the extent
REFRENCES
1.
Gill
H. william, Evidence and procedure in arbitration.
2.
Gillies,
P. and Moens, G.(prof.). international Trade and business law, Policy and
ethics (1998).
3.
Holdsworth,
History and English Law(1964).
4.
Kwatra,
G.K., 'The New Arbitration and Conciliation Law of India, The Indian Council of
Arbitration Publication.
5.
Martin
H., and Redfern A., International Commercial Arbitration (Sweet & Maxwell).
6.
Mittal
D.P., ' Law of Arbitration ADR and Contract'.
7.
Mozeley
and Whiteley, 5 Concise Law Dictionary
8.
Schimithoff
and Simond, International Economics and Trade Law.
9.
Singh,
S.D., 'Law of Arbitration, 7th ed., Eastern Book Company, Lucknow.
[1] Jean M. Wenger is the Government
Documents/Foreign and International Law Librarian at the Cook
Country Law Library, a
practitioner’s law library in Chicago.
[2] Banerjee Durga Charan, “Law of Arbitration in India”.
P.1
[3] Section(2)(1)(a).
Venugopal, K.K., „Arbitration and Conciliation Act,1996
[5] Aubert, V., Competition and Disensus: two types of
conflict and conflict resolution (1963) 7. Journal of Conflict Resolution 26.
[6] The secondary meaning of compromise is given as „An
Agreement under which the parties make mutual concession?, in Robert,
Dictionaire de la longue francaire.
[7] UNCITRAL Model
Law Article 7(1)
[8] Gillies. P. and Moens. G. (Prof.). International Trade
and Business Law, Policy and Ethics (1998)p.732.
[9] Sec. 2(f), Arbitration and
Conciliation Act, 1996
[10] China, Peru, Columbia,
Ukraine are the only four New York Convention Countries that have prescribed
the legal qualification for arbitrators
[11] Sornarajah, M., Article
„International Commercial Arbitration:
The Protection of State Contracts.
[15] AIR 1994 Del. 75.
Article Information
COMMERCIAL ARBITRATION AND UNCITRAL MODEL LAW
Authors: KOSTUBH CHANDELA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/05/03
- Issue 7
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International Journal for Legal Research and Analysis
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- ISSN 2582-6433
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