INTRODUCTION

Greater speed, lower expense, expert decision, and confidentiality are the most common
reasons given for arbitration. Since commercial disputes are driven by economic interest,
the most logical settlement is by arbitration. This is to widen the possibility of reconciliation
and to keep the business relationship alive for both parties. Arbitration is an amicable way
forward through authoritative decision and considered a contractual mechanism to resolve a
momentary problem occurring during business dealing with the assistance of a third party.
Because of the expansion of the global trade and investment, international dispute rises
and every business enterprises can find themselves entangled in legal proceedings with
foreign companies. Arbitration clauses have become virtually widespread in international
contracts to lessen the doubts associated in international commercial disputes. International
business operators favour international arbitration over litigation because of its excellent
neutrality, flexibility, and confidentiality. The significant advantage of institutional
arbitration is a certain measure of convenience, security, and administrative effectiveness.
Moreover, many believe that institutional arbitration is more readily honoured by national
courts than those operating outside the formal institution.

Enforcement
Arbitration awards can be easier to enforce internationally than the judgments of national courts. The United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 known as the New
York Convention has been ratified by 154 countries. This means that, in principle, an arbitration award can
be enforced in any of those countries. By contrast, court judgments are generally only enforceable in countries
where there are reciprocal enforcement arrangements in place.

So, for example, whilst an English court judgment can be enforced easily in any EU state through the Brussels
Regulation on the Recognition and Enforcement of Judgments, it can be difficult to enforce an English court
judgment in many other countries. By contrast, an English arbitration award can be enforced in 154 countries.

Where the assets of the potential defendant are in a country where a national court judgment cannot be
enforced, arbitration is the obvious choice.

Neutrality and confidentiality

Parties to international contracts often want to avoid using the home courts of one of the parties in order to
ensure neutrality. In addition, arbitration avoids problems with unfamiliar or unpredictable local court
procedures.

Court proceedings are usually public, whereas the parties can agree to keep arbitration proceedings
confidential. In this way, the parties can protect commercial practices, trade secrets, industrial processes and
knowledge of the dispute itself. In some countries, however, confidentiality may be lost if arbitration
proceedings end up in court for example, if the arbitration award is appealed.

If confidentiality is important then it is sensible to include a confidentiality provision in the arbitration

agreement.

Finality
The parties can, subject to the applicable procedural law, agree that an arbitration award is final and binding,
and cannot be appealed to a court. In many jurisdictions, awards (particularly those in domestic arbitration)
will not be set aside on the ground of errors of fact or will only be set aside in very exceptional circumstances.
Whilst most jurisdictions permit the parties to agree not to appeal to the courts on a point of law, in many
jurisdictions the right to appeal on grounds of serious procedural irregularity is mandatory and cannot be
excluded, even by agreement. The ability to restrict appeals on points of law means that arbitration
proceedings can be concluded more quickly than court proceedings.

Choice
In arbitration, the parties have considerable choice over the way in which their dispute is conducted. They can
choose in which country, city and, even, in which building they wish to hold their arbitration (although, unlike
court proceedings, they will have to pay for the venue).

The parties are also free to select the arbitrators themselves. This can be helpful where the dispute is of a
technical nature, since they can ensure that the arbitrators have particular technical skills or expertise. (Bear
in mind, however, that, unlike judges, arbitrators must be paid by the parties.) It is important to agree to the
appointment of an odd number of arbitrators (either a sole arbitrator or a panel of three): if two, or four,
arbitrators are selected, the panel may be unable to reach a decision due to deadlock.

The language(s) in which the arbitration is conducted can also be specified by the parties.

The legal framework

International arbitration is subject to a number of layers of regulation and in this respect is more complex in
structure than national court litigation. What follows is a summary of the different laws and rules that make up
this framework.

The law governing the contract

The substantive law of the contract between the parties is the law governing the contract. Regardless of where
the arbitration takes place, the arbitrators will apply the substantive law of the contract when deciding the
issues in dispute under the contract.

The law governing the arbitration agreement

It must be remembered that the arbitration clause within the main contract is a contract in its own right,
collateral to the main contract. It is, in effect, a contract within a contract and is severable from the main
contract.

If the arbitration agreement is contained within the main contract, the law of the main contract will usually
govern the arbitration agreement (if no other law is chosen by the parties to govern the arbitration agreement
and generally none is). However, if an arbitration agreement is entered into after the main contractual
dispute has arisen (because the main contract contains no arbitration clause), it will not necessarily follow that
the arbitration agreement will be governed by the same law as the main agreement (if no separate choice of
law is made in the arbitration agreement).

Although it is by far the most usual case that the arbitration agreement is governed by the same law as the
main contract, it is possible to provide for the law of the arbitration agreement to be a different governing law
from that of the main contract. Institutional rules such as the ICC Rules do not deal with the governing law
of the arbitration agreement. Their standard clauses do not include a choice of law clause for the arbitration
agreement itself but they do stress the desirability of stipulating the governing law of the main contract.
The law governing the arbitration agreement covers substantive matters relating to the
agreement to arbitrate, as, for example, the interpretation and validity of the agreement to
arbitrate. The issue of whether a particular dispute falls within the terms of an arbitration
clause will be governed by the law governing the arbitration agreement.

It will also be relevant to issues relating to the recognition and enforcement of the award. For
example, under article 5 of the New York Convention, recognition and enforcement of an
award may be refused if the arbitration agreement is not valid under the law to which the
parties have subjected it.

The procedural law

The nature and scope of the law of the seat of the arbitration determines the procedure for
the arbitration. Clients will often require that the place at which any arbitration is to take
place is a place that is neutral to all parties. It is vitally important to ensure that, when
selecting a seat for the arbitration, the requirements and scope of the laws of that place of
arbitration are understood. Different countries can import different requirements into their
own law and, to be effective, an award will have to comply with all the mandatory
requirements imposed by the law of the seat of the arbitration.

The procedural law acts in concert with the institutional or ad hoc rules (if any) under which
the arbitration is to be conducted. The procedural law and the rules govern the conduct of the
arbitration; by adopting certain rules, the parties may find that they have contracted into or
opted out of various of the default non-mandatory provisions of the procederal law.

Typically, the procedural law covers questions relating, for example, to the arbitral tribunal
itself, such as its appointment and any revocation of its authority, its powers and duties and
remedies for any breach of duty. It also determines the availability of interim and procedural
remedies. The form and validity of the award and grounds for challenges to the award where
challenge is made at the place of arbitration will also be determined by the procedural law. In
some instances, the law of the seat of the arbitration can also stipulate that a particular type
of dispute cannot be settled by arbitration under local law. In some states, if the proper law of
the contract has not been chosen by the parties, it is normally determined by the conflict of
law rules of the procedural law: this enables the tribunal to work out which national law to
apply to interpret the procedural laws applying to the contract usually the law of the place
where the arbitration is taking place.

The law of the place of recognition and enforcement of the award

The law of the place of recognition and enforcement of any potential award should also be
considered. Is the country a signatory to the New York Convention? What is that countrys
national courts reputation in relation to ease of enforcement of arbitration awards? There can
be substantial differences in the approach of local courts to the enforcement of a foreign
arbitration award. It is important to obtain local advice at the outset (preferably when drafting
the dispute resolution clause) on the prospects of enforcing an award in a particular
jurisdiction.

See page 03 on enforcement and the New York Convention.

The procedural rules of the arbitration

The parties can (within the constraints of the procedural law) choose their own rules to govern
the procedure. There are essentially two options here: institutional rules or ad hoc procedures.

Institutional rules are chosen when the arbitration is administered by an arbitration institution.
The rules of the major institutions are well known and their application is reasonably
predictable.

An arbitration is ad hoc when it is not administered by an arbitration institution. In theory, it is

possible for the parties to write their own rules but this is rarely, if ever, done in practice.
Instead, the parties use the procedural rules that either they have chosen or on which the
arbitrator(s) has decided. Alternatively, the arbitration may be governed solely by the
procedural law of the arbitration.

The powers of the tribunal

The authority of the tribunal (or panel of arbitrators) comes from the contractual arbitration
agreement between the parties. The powers of the tribunal are set out in the relevant
procedural law and procedural rules. The limits of the arbitrators powers will therefore differ,
depending on the procedural law and rules chosen.

The powers of the court

The powers of the court to hear applications relating to an arbitration will be determined by
the procedural