Introduction to arbitration



Advantages of arbitration

Among the available dispute resolution alternatives to the courts, arbitration is by far the most commonly used internationally. The reasons for this are clear:

Final, binding decisions

While several mechanisms can help parties reach an amicable settlement - for example through mediation under the ICC ADR Rules - all of them depend, ultimately, on the goodwill and cooperation of the parties. A final and enforceable decision can generally be obtained only by recourse to the courts or by arbitration. Because arbitral awards are not subject to appeal, they are much more likely to be final than the judgements of courts of first instance. Although arbitral awards may be subject to being challenged (usually in either the country where the arbitral award is rendered or where enforcement is sought), the grounds of challenge available against arbitral awards are limited.

International recognition of arbitral awards

Arbitral awards enjoy much greater international recognition than judgements of national courts. 137 countries have signed the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the "New York Convention". The Convention facilitates enforcement of awards in all contracting states. There are several other multilateral and bilateral arbitration conventions that may also help enforcement.

Neutrality

In arbitral proceedings, parties can place themselves on an equal footing in five key respects:

Specialized competence of arbitrators

Judicial systems do not allow the parties to a dispute to choose their own judges. In contrast, arbitration offers the parties the unique opportunity to designate persons of their choice as arbitrators, provided they are independent. This enables the parties to have their disputes resolved by people who have specialized competence in the relevant field.

Speed and economy

Arbitration is faster and less expensive than litigation in the courts. Although a complex international dispute may sometimes take a great deal of time and money to resolve, even by arbitration, the limited scope for challenge against arbitral awards, as compared with court judgements, offers a clear advantage. Above all, it helps to ensure that the parties will not subsequently be entangled in a prolonged and costly series of appeals. Furthermore, arbitration offers the parties the flexibility to set up proceedings that can be conducted as quickly and economically as the circumstances allow. In this way, a multi-million dollar ICC arbitration was once completed in just over two months.

Confidentiality

Arbitration hearings are not public, and only the parties themselves receive copies of the awards.

Ad hoc or institutional arbitration? 

Parties using arbitration have a choice between designating an institution, such as ICC, to administer it, or proceeding ad hoc outside an institutional framework. In ad hoc cases, the arbitration will be administered by the arbitrators themselves. However, should problems arise in setting the arbitration in motion or in constituting the Arbitral Tribunal, the parties may have to require the assistance of a state court, or that of an independent appointing authority such as ICC. Although institutional arbitration requires payment of a fee to the administering institution, the functions performed by the institution can be critical in ensuring that the arbitration proceeds to a final award with a minimum of disruption and without the need for recourse to the local courts. The services an institution may offer are exemplified by the role of the ICC Court, which provides the most thoroughly supervised form of administered arbitration in the world. Among other things, the ICC Court will, as necessary: (i) determine whether there is a prima facie agreement to arbitrate; (ii) decide on the number of arbitrators; (iii) appoint arbitrators; (iv) decide challenges against arbitrators; (v) ensure that arbitrators are conducting the arbitration in accordance with the ICC Rules and replace them if necessary; (vi) determine the place of arbitration; (vii) fix and extend time-limits; (viii) determine the fees and expenses of the arbitrators; and (ix) scrutinize arbitral awards.

ICC arbitration: distinctive features

The ICC International Court of Arbitration

The ICC International Court of Arbitration ("the Court") is the world's foremost institution in the resolution of international business disputes. While most arbitration institutions are regional or national in scope, the ICC Court is truly international. Composed of members from 88 countries and every continent, the ICC Court is the world's most widely representative dispute resolution institution.

The ICC Court is not a "court" in the ordinary sense. As the ICC arbitration body, the Court ensures the application of the Rules of Arbitration of the International Chamber of Commerce. Although its members do not decide the matters submitted to ICC arbitration - this is the task of the arbitrators appointed under the ICC Rules - the Court oversees the ICC arbitration process and, among other things, is responsible for: appointing arbitrators; confirming, as the case may be, arbitrators nominated by the parties; deciding upon challenges of arbitrators; scrutinizing and approving all arbitral awards; and fixing the arbitrators' fees. In exercising its functions, the Court is able to draw upon the collective experience of distinguished jurists from a diversity of backgrounds and legal cultures as varied as that of the participants in the arbitral process.

The Secretariat of the ICC Court

The Court is assisted by a Secretariat located at ICC Headquarters in Paris. The Secretariat currently has a full-time staff of 50 persons, including 30 lawyers of 23 different nationalities. The Secretariat closely follows all ICC cases and is available to provide assistance and information in a wide range of languages. At present, each case is followed by one of seven teams headed by a Counsel. The Secretariat has state-of-the-art computerized case management and information retrieval systems which function in four different languages.

Designation of arbitrators

It is commonly said that an arbitration is no better than the arbitrators. Selection of the Arbitral Tribunal is, therefore, one of the most critical steps in arbitration.

Under the ICC Rules, the Arbitral Tribunal is composed of one or more arbitrators. When only one arbitrator is to be designated, he or she is appointed by the Court, unless the parties agree otherwise. When three arbitrators are to be designated, each party nominates an arbitrator; the third arbitrator, who chairs the tribunal, is appointed either with the agreement of the parties or co-arbitrators, or by the Court. When the parties are unable to agree on the number of arbitrators, the ICC Rules provide that the Court shall appoint a sole arbitrator, "save where it appears to the Court that the dispute is such as to warrant the appointment of three arbitrators."

When it comes to the appointment of arbitrators, ICC - unlike other arbitral institutions - enjoys the support of national committees in some 90 different countries. National committees are able to identify potential arbitrators with appropriate qualifications all over the world. Unlike certain other institutions, ICC does not require that arbitrators be selected from pre-established lists, thus ensuring the greatest possible freedom of choice and flexibility in the constitution of the Arbitral Tribunal.

Monitoring the arbitral process

Unlike many other institutions, the ICC Court monitors the entire arbitral process, from the initial Request to the final Award. The ICC Rules require that, within two months of receiving the file, the tribunal prepare and submit to the Court a document defining its Terms of Reference. A unique feature of ICC arbitration, the Terms of Reference serve the useful purpose of bringing the arbitrators and parties together at an early stage, to identify the issues they will be required to deal with and the procedural details that need to be addressed. It is also sometimes possible at that stage for the parties to reach agreement on certain outstanding issues, such as the language of the arbitration or the governing substantive law. A fact which users should not overlook is that a significant proportion of ICC arbitration cases are amicably settled at the stage of the Terms of Reference.

During the proceedings, the Court regularly reviews the progress of all pending cases, and, in the process, considers whether there are any measures that need to be taken in order, for example, to help ensure that the case advances as quickly as reasonably possible and that the proceedings are being conducted in conformity with the Rules. In this connection, the staff of the Court's Secretariat closely follow the case and receive copies of all written communications and pleadings exchanged in the arbitration proceedings.

Fixing arbitrator remuneration

The rules of many arbitral institutions provide either that the arbitrators fix the amount of their own fees or that the fees be established on the basis of a daily or hourly rate fixed or arranged by the institution.

Under the ICC Rules, however, the arbitrators are not remunerated on the basis of an hourly or daily rate, and the arbitrators play no role in determining their own fees. Rather, their fees are fixed by the Court at the end of the arbitration on the basis of a published scale attached to the ICC Rules. Under that scale, the arbitrators' fees are fixed with reference to the amount in dispute. In fixing the arbitrators' fees, the Court also considers the diligence of the arbitrators, the time spent, the rapidity of the proceedings and the complexity of the dispute. Thus, the Court, rather than the arbitrators, determines the final fees, taking into account the manner in which the arbitration was handled, and, in particular, the arbitrators' efficiency.

The fees and expenses system is therefore intended to encourage the efficient handling of cases within a financial framework that is proportionate to the amount at stake in the arbitration. The fact that the scales are based on the sum in dispute also has the virtue of discouraging the submission of frivolous claims and counter-claims, which could otherwise have an immediate and direct impact on the cost of the arbitration. An arbitration cost calculator is available for helping parties at the outset to form a general idea of the cost of the arbitration.

Scrutinizing arbitral awards

One of the most important functions of the Court is the scrutiny of arbitral awards. The ICC Rules provide that the Court must approve all awards as to their form and that the Court may also, without affecting the arbitrators' liberty of decision, draw their attention to points of substance. In ICC arbitration, scrutiny is a key element ensuring that arbitral awards are of the highest possible standards and thus less susceptible to annulment in the national courts than they might otherwise be. The scrutiny process provides the parties with an additional layer of protection that would not otherwise be available, since arbitral awards are generally not subject to appeal. This unique quality-control mechanism makes ICC arbitration the world's most reliable arbitration system.

Arbitration cost calculator