Abstract:
Arbitration is an emerging dispute resolution in the world without court proceedings. Arbitration is the dispute resolution of parties’ freedom to choose the proceedings. In arbitration, the international commercial Arbitration and the investment Arbitration are the same nature of the dispute resolution with different parties involved in the Arbitration agreements or contract agreements. In this Arbitration dispute resolution, what are the historical development and legal regime governing laws. And also look into that, what provisional methods evolved over the period of time and how the international commercial Arbitration and investment Arbitration developed in the different countries and India etc. The role of Ad-hoc and institutional Arbitration in these Arbitration.
Introduction:
Arbitration is speedy and less expensive dispute resolution of justice remedy without any binding of court proceedings. Arbitration provides the freedom to the parties to choose their own way of ad-hoc Arbitration or institutional Arbitration of procedure to resolve the emerging disputes between the parties. Here, the Ad-hoc Arbitration and Institutional Arbitration are also called Arbitration rules, which are the legal regime of governing proceedings. Apart from these governing rules, many legal regimes of governing rules have evolved over the period of time, those are New York convention, UNCITRAL Model on international commercial Arbitration, International Centre for Settlement of Investment Disputes (ICSID) and International institutional Arbitration centre like LCIA and SIAC etc.
International commercial Arbitration (ICA) is the process of resolving Arbitration agreements or contract Agreements between or among transnational parties using sole Arbitrator or the tribunal rather than through the Courts. Usually, the parties are agreed to make Arbitration agreement regarding the arising dispute to resolution through Arbitration. In this scenario, the dispute resolution is binding in nature. Over the period, the international commercial Arbitration evolved as the most popular methods of dispute resolution in international trade between the private parties. Investment Arbitration is also called the inter-state dispute resolution method.
Here, the involvement of the parties in the Arbitration are between the two States or between the One State and the Private Investor. The investment Arbitration, the arising issues are, rights of investor vs host state and one state over the state investment of FDI, FPI etc. How the parties can claim in the investment Arbitration. Here also looking at the legal regime of governing laws though the national laws, Arbitration Clauses and United Nations convention and special bodies principal or articles etc.
International commercial Arbitration:
International Commercial Arbitration is a particular means of settling disputes through an Arbitration that is commercial in nature and has some international element to it. Here, the parties are private persons or corporations or any other association etc. The term international commercial arbitration has not been defined. However, there is clear agreement on its constituent elements. The procedures are also adopted in international commercial arbitration according to the parties agreed in the agreement or contract. It is treated like litigation in the state courts, leading to a final and binding result that will be given execution by the courts. The international commercial arbitration is a speedy, less expensive, and simple procedure by which the parties’ freedom to choose led to emerging international dispute resolution in the world. Due to such nature, international commercial arbitration develops in many countries and many parties shift towards Arbitration to settle the disputes in the International Trade. Over the period, international commercial arbitration has evolved through the transformation stages.
Historical development of International Commercial Arbitration:
As we know, arbitration was also exciting in ancient history India as well as Europe also. In ancient Indian history, Arbitration evolved in the Brihadaranyaka Upanishad1 and was also divided into the three courts, PUGA, KULAS and SERNIS etc. Thereafter, Arbitration mainly evolved through the Panchayat System in India history. Whenever looking into Europe, from the history of Israel the king Solomon acted as an arbitrator to resolve the dispute between the two mothers who claimed the young child as their own blood stream2. Thereafter, the king’s court acted as an ADR to resolve the disputes in the kingdom. After that, during the mediaeval period also, international commercial arbitration was used to resolve the arguments or disputes between merchants and businessmen. In Europe international commercial arbitration evolved mainly during this period, especially in England as well as Mediterranean Sea trade routes. The above periods existed as an arbitration of all forms were the uncodified form of Arbitration, not any written document or codified laws to follow the procedure of arbitration.
After the courts were established, the arbitration dropped drastically and changed the legal system of proceedings. The first international commercial arbitration statute was enforced in England which introduced legislation through the English Arbitration Act,1899 and finally merged with the English Arbitration Act,19503. Thereafter many other countries legislated their own legislative laws. For Example, USA established statute known as the Federal Arbitration Act, 1925 and India established statute known as the foreign Arbitration (recognition and enforcement) Act, 1961 and the Indian Arbitration Act,1940, both are finally merged with a4. Not only the evolved of the Arbitration legislative statutes in the countries, but also evolved many international Institutional Arbitration Centres to provide Arbitral proceedings to resolve the disputes resolution. The UNCITRAL Model on international commercial arbitration, London Court of international Arbitration (LCIA), Singapore International Arbitration Centre (SIAC) and ICC (international chamber of commerce) etc. Example, ICC has the membership of around 142 countries and has resolved nearly 25,000 cases till now5. The international court of Arbitration (ICA) is one of the most prominent international commercial disputes resolving firms, it is an arbitral tribunal.
The Provisions of International Commercial Arbitration:
The procedure of the arbitration is simple and speedy resolution of procedure without the delay of court proceedings. The parties themselves can choose what kind of procedure they want to conduct the arbitration proceedings through the Ad-hoc Arbitration or through the selection of the institutional Arbitration proceedings. Here parties have the freedom to choose appointment of arbitrators, seat of the arbitration, language of the arbitration and referral to the arbitration when the evolution of the disputes etc. The sequential procedure of the international commercial arbitration is:
Notice of Arbitration:
When the parties made the agreement or contract, if any dispute arising then the parties go to the Arbitration instead of the Court. It is clear that when the two parties are agreed to make the arbitration agreement or contract then the arbitration comes into the light. When a dispute arises which is related to the arbitration agreement or contract then the arbitration is valid then the parties can move the arbitration proceedings one party over the other party. In Booz Allen & Hamilton Inc vs SBI Home Finance Ltd case (2011)6, the supreme court of India clearly provides the guidelines, in which cases parties can make arbitration Agreements or contracts as memorandum of understanding between them. If the case does not exist under the arbitration agreement, then the parties can’t go to the arbitration proceedings. In the arbitration agreement, parties can mention the time for giving notice period to each other if not responding within the time, then the issuing party can approach the court for the arbitration proceedings to proceed.
Referral to Arbitration:
The question arises, does the courts have the judicial authority over the disputes related to the arbitration agreement or not? The supreme court clearly stated in P. Anand Ganapathi Raju vs P.V.G. Raju case7 the agreed party can’t come to the court directly because the matter is related to the arbitration agreement, so parties first to the arbitration thereafter approach the court if the validity or existence of the arbitration agreement is not satisfied.
Appointment of Arbitrators:
Here, the appointment of Arbitrators is decided by the parties themselves or the institutional Arbitration if both are not decided by within the time period the court, the seat of arbitration is decided. The appointment of arbitrators may be sole arbitrator or multiple arbitrators (arbitral tribunal) by the parties or by the institutional arbitration.
Seat of the arbitration and Language of the arbitration:
The seat of the arbitration means the applicable laws of the country in which arbitration proceedings acted as the substantive law of the governing regime. If the parties are not chosen, then the appointment of arbitrators (Arbitration Tribunal) will be decided. The Language is also decided by the parties if not an arbitration tribunal will be decided.
The procedure of ICA:
The conduct of the procedure steps of the arbitration varies case by case through the freedom of choice of the parties. If the parties are choosing ad-hoc Arbitration, according to the arbitration agreement of the parties choosing of procedure should follow in the arbitration. If parties, choose the institutional Arbitration then the arbitration proceedings of the institution will follow. The conduct of arbitration is, claims, counterclaims (defence claims), documentary evidence, additional Claims, hearing, and written proceedings etc.
Arbitral Awards and Enforcement:
According to the New York convention provisions and UNCITRAL Model on international commercial arbitration, the Arbitral Awards are binding in nature. The parties should mandatorily follow the award given by the ad-hoc Arbitration or institutional arbitration if it is agreed by the parties through the arbitration agreement. Parties must agree to the arbitral award without set aside award until the award doesn’t have the incapacity nature, not valid under the arbitration, not given the proper notice, Arbitral Award not followed under the arbitration agreement etc. Enforcement of the award is like the decree of the court. Once award passed under the arbitration agreement, the claimant must short remedy from the respondent within the time period of one month or time prescribed in the agreement, if not the seat of the arbitration court will decide the enforcement of the award.
Legal Regime of International Commercial Arbitration:
The legal Regime means the governing laws of the arbitration regarding International Commercial Arbitration. The governing laws of the United Nations convention like New York convention,1958 as well as Geneva convention,1927 and The UNCITRAL Model on international commercial arbitration,1985 etc. Under the New York convention,1958, many countries are members of this convention. Due to that, many countries accepted the New York convention provisions in the international commercial arbitration and ratified these provisions. The New York Convention acts like foreign award without any barriers between the borders of the countries. The UNCITRAL Model on international commercial arbitration, also implemented in many countries and acted as base to frame the legislation act regarding the arbitration. The best example is India, where The Arbitration and Conciliation Act,1996 made on the grounds of the UNCITRAL Model on international commercial arbitration and inserted the New York convention,1958 provisions in the Act. These International conventions and international bodies acted as applicable laws for governing arbitration without any borders between the parties in the globalisation world.
Thereafter other governing laws are, the national legislative laws, the English Arbitration Act,1950, the Federal Arbitration Act (USA),1925 and the Arbitration and Conciliation Act,1996 etc. Each country made their own governing law of the arbitration to implement the commercial arbitration without losing the international market in their respective countries. Example, In United Kingdom (U.K), the commercial arbitration evolved around the eighteenth century but codified law evolved through the English Arbitration Act, 1899 and this act merged with the English Arbitration Act,1950, where the arbitration doesn’t have the international Arbitration provision and finally, The Arbitration Act,19968 developed as an International Arbitration to follow the international provision to avoid any discrimination or difference between the host country party and another party etc. In India also, the international commercial arbitration developed through the landmark judgement of Bharat Aluminium Co vs Kaiser Aluminium Technical Services Inc (BALCO) case9 judgement. In this case, what is the difference between domestic Arbitration and International Arbitration? Finally, in this case the apex court stated that, if the arbitration is international commercial arbitration and the seat of the arbitration is outside India, then the first part of the Arbitration act, 1996 does not apply to the international commercial arbitration. Likewise, many countries adopted their own suitable laws for commercial arbitration.
Another governing law is International Institutional Arbitrations. Examples ICC (the international chamber of commerce), the London Court of international Arbitration (LCIA), the Singapore International Arbitration centre (SIAC), Hong Kong International Arbitration centre (HKIAC), the international Arbitration and mediation centre (IAMC) and the Mumbai court of international Arbitration (MCIA) etc. These institutions have their own arbitration proceedings to conduct the arbitration disputes. These institutions succeeded to achieve the mountain heights in the dispute resolution mechanism. Many parties are choosing these Institutional Arbitrations to resolve the arbitrable disputes. According to LCIA, in the year 2000, the LCIA got only 14 cases per annum but at present, in 2020, the LCIA got around more than thousand cases. This is a remarkable achievement of institutional Arbitration in the arbitral disputes. The institutional arbitration culture may require every country to resolve the arbitral disputes without depending on courts as well as the involvement of the courts.
Investment Arbitration (Inter-State Arbitration):
The Investor-State Arbitration is the alternative dispute resolution between the investor (any private person) and the state (Host-State) to resolve the arising disputes. The Investor-State Arbitration provides fair and equitable legislation to the investor (foreign investors), who are interested in the investment of the Host-State. The Investor-State Arbitration protects the investor’s monetary values and commercial profits from the Host-States indirect threat of the expropriation or discrimination laws or legislations, biased towards its citizens that could lead to huge losses to the investors (foreign investors) and also to restrict the States stop imposing any partial and dependent favour for the interest of the public policies. The Arbitration allows the foreign investors to bypass national jurisdictions and to uphold the international standards of treaties to resolve the dispute between the parties. The Investor-State Arbitration accedes through the treaties like International Investment Agreements, including Bilateral Investment Treaties, Free Trade Agreements and Multilateral Agreements etc. The International Institutions and Conventions also acts as the Investor – State Arbitration accedes to resolve the dispute between the foreign investors and Host-States. Investor-State Arbitration played important roles in the countries to get the foreign direct investment (FDI), foreign portfolio investment (FII) and foreign institutional Investment (FII) and to develop the economic stature of the Countries.
The Historical Background of Investment Arbitration:
The evolution of Arbitration is not a new concept. The ancestral history knew what Arbitration was and how those periods existed as a dispute resolution mechanism. But the ancestral period of Arbitration was uncodified law. The modern history of international Arbitration is generally recognized as dating from the so-called Jay Treaty of 17942 between the USA and UK (Great Britain)10. In the Treaty of Amity, Britain admitted that to cause the Americans grievances, agreed to evacuate the Northwest Territory of US; to compensate for its damages or destruction against the Americans; to end discrimination against American commerce; and to grant the US trading privileges in England and the British East Indies. Thereafter, the Alabama Claims Arbitration in 187211, between the United Kingdom and the United States marked the new phase of dispute resolution, which is based on the Jay Treaty. Under the Treaty of Washington of 1871, appointed independent Arbitrators of Commission to resolve the dispute under Alabama Claims. The Arbitration Commission rejected the indirect damages Claims but did order Britain to pay compensation for the claims. This Arbitration commission or tribunal acted for the effectiveness of Arbitration in setting off a major dispute and led to the later century to developments in the Arbitration.
Finally, in the last year of the nineteenth century the Hague Conference of 18994 evolved. It marked the beginning of the new era of modern history of International Arbitration. In this convention some states of Europe, some Asian States and Mexico participated, it acted as independent Arbitration of dispute resolution to bring peace and disarmament. This convention lay down the Permanent Court of Arbitration. The Permanent Court of Arbitration was established in 1900 and began operating in 1902. Thereafter five years later, another second Hague convention,1907 was evolved. The Article -14 of the convention of the League of Nations gave the formulating plans for the establishment of a permanent court of international justice (PCIJ) in 1920. Then evolved another internationally agreed protocol and convention of Geneva protocol and Geneva convention5 in 1923 and 1927. Another international Arbitration institution is the international court of justice. This Geneva convention is not recognized by the major countries, later evolved from the other United Nations’ New York convention,1958. Which came into force in1959. Thereafter, the institutional Arbitration culture evolved to in the dispute resolution of private persons and states as well as between the privates etc. The institutional Arbitration culture evolved around the second century of the twentieth century. The International Institutions like International centre for settlement of investment Disputes (ICSID), International chamber of commerce (ICC), UNCITRAL models, the London Court of international Arbitration (LICA), Singapore International Arbitration centre (SIAC), International Arbitration and Mediation centre (IAMC) etc. The Investor-State Arbitration has developed in many countries and is also successful in dealing with that.
Applicable of legal Regim in Investment Arbitration:
The first subjective matter of the deciding factor is applicable law in the investment Arbitration, where the parties to choose themselves have a governing law for their dispute. In the Investment Arbitration, the parties’ freedom are fundamental principles of choosing the applicable law. Being an arbitral procedure, there is no difference between international commercial arbitration and investment arbitration in the parties’ freedom to choose the applicable law. After the applicable law of the parties, according to the application law the investment arbitration conducts the arbitration proceedings. Most states go with the party autonomy of applicable law in the investment arbitration, if not the states choose the applicable law according to the Bilateral Investment Treaty or Multilateral investment treaty. These Bilateral treaties act as an international law between the countries to avoid the disputes among them. A country like India, which is not a member of the ICSID, the bilateral treaties are helpful to resolve the disputes. The first investment disputes arising out of the Dabhol Power Project in Maharashtra were brought against the Indian state in 2004, they were settled through the Bechtel Enterprises Holdings Inc. and GE Structured Finance (GESF) vs The Government of India (2003)case12, claims arising out of alleged reversal in the energy policy of the local government changed due to result of political change in the government, finally compensation paid to investor by the State. Thereafter India developed many Investment Arbitrations. Today, India has more than twenty-five cases as a respondent state to deal with. In recent cases, like In Cairn Energy PLC Cairn UK Holdings Limited (CUHL) vs Government of India (2016) case13, Indian state paid compensation to Cairn Energy due the deals of the India government slow process and policy changes led to restriction to function properly.
Another fundamental principle of applicable law is ICSID convention, UNCITRAL Arbitration Rules and International chambers of commerce (ICC) adopted rules of the states. When the States are agreed under the above Rules to applicable law of the investment Arbitration then these rules act as binding norms to resolve the disputes in arbitration. Article 42(1) of the ICSID convention provides that the law of the contracting State party to the dispute and such rules of international law may be applicable. Article 35(1) of the UNCITRAL Arbitration Rules stipulates that the applicable rules of the arbitration designated by the parties as to be substantive law of the dispute. Similarly, Article 21(1) of the international chambers of commerce arbitration Rule11, provides that the parties shall be free to agree upon the rules of law applicable by an arbitral institution to the merits of the dispute. In one of the early cases, AAPL vs Sri Lanka case14, the arbitral institutions seemed to struggle with the notion that a prior choice of law could be effectuated by the contracting State for the benefit of the respective investors. However, substantive law in the treaty is deemed to be chosen directly by the parties to the arbitration as the arbitration agreement contained in a treaty is deemed to be stipulated by the contracting State for the benefits of its investors.
It is clear that in the investment arbitration, the parties have autonomy through choosing applicable law of the ad-hoc arbitration or to adopt the applicable laws of institutional arbitration etc.
Enforcement of Investment Arbitration:
The ICSID Convention provides the rules for the enforcement of investment arbitration where the host state should be bound to respect the articles 53 to 55 of the ICSID Convention. In this convention, each state must bind upon recognition to render the enforcement of the arbitral awards, where treated as a final judgement of a court in that state. If the host state is not a party to the ICSID Convention, then enforcement of the award is carried out in accordance with the New York convention,1958, where they treat these arbitral awards as international arbitration awards.
Conclusion:
As a globalisation era of the universe, many countries as well as private parties are showing keen interest in the Investor-State Arbitration and International commercial arbitration respectively, through the ratification and signatory to the international investment arbitration’s conventions and institutions as well as to make the Bilateral, Multilateral investment treaties and Free Treaty Agreement among the countries. Especially, a country like India, which is the world’s fastest growing economy, needs robust policies and rules to implement the Investment Arbitration without delays, which will cost heavy prices if Disputes do not resolve in the Investor-State Arbitration. Being such a growing nature of the arbitration, what is required is proper provisions, rules, and regulations without any arbitrary or discretion powers of the parties as well as State. The institutional Arbitration culture is keen to conduct the arbitration proceedings as well as delivery of the arbitral awards. Finally, every country must uphold the international and domestic laws to examine rising disputes with initiative of arbitration proceedings fairly and justly with equal treatment of every party as well as the respondent States.
References:
- https://www.legalserviceindia.com/legal/article-1126-kinds-of-arbitration.html
- https://ventolamediation.com/2018/06/10/profiles-in-dispute-resolution-king-solomon
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- https://www.indiacode.nic.in/handle/123456789/1978?sam_handle=123456789/1362
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- https://indiankanoon.org/doc/188958994/
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- https://history.state.gov/milestones/1861-1865/alabama#:~:text=The%20arbitration%20commission%2C%20which%20issued,compensation%20for%20the%20Alabama%20claims.
- https://www.bechtel.com/newsroom/releases/2003/09/tribunal-rules-dabhol-power-project-arbitration/
- https://www.google.com/amp/s/www.scconline.com/post/2021/03/08/cairn-energy-plc-and-cairn-uk-holdings-limited-cuhl-v-government-of-india-a-rising-and-burning-need-for-investor-state-mediation-in-investor-state-tax-and-energy-related-disputes/%3famp
- https://jusmundi.com/en/document/decision/en-asian-agricultural-products-ltd-aapl-v-republic-of-sri-lanka-award-wednesday-27th-june-1990#:~:text=According%20to%20the%20Claimant%2C%20the,be%20used%20by%20local%20rebels.
Written by
Bodd Papi Naidu
Central University of Haryana 2021-Pursuing