What method accounts for the majority of resolutions in international commercial transaction dispute?

If ICC Arbitration is chosen as the preferred dispute resolution method, it should be decided when negotiating contracts, treaties or separate arbitration agreements. However, if both parties consent, this can be included after a dispute has arisen as well.

It is recommended that parties wishing to make reference to ICC Arbitration in their contracts use the standard clause below.

Standard ICC Arbitration Clause

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

Parties are free to adapt the clause to their particular circumstances. For instance, they may wish to stipulate the number of arbitrators given that the ICC Arbitration Rules contain a presumption in favour of a sole arbitrator. Also, it may be desirable for them to stipulate the place and language of the arbitration and the law applicable to the merits. The ICC Arbitration Rules do not limit the parties’ free choice of the place and language of the arbitration or the law governing the contract.

When adapting the clause, care must be taken to avoid any risk of ambiguity. Unclear wording in the clause will cause uncertainty and delay and can hinder or even compromise the dispute resolution process.

Parties should also take account of any factors that may affect the enforceability of the clause under applicable law. These include any mandatory requirements that may exist at the place of arbitration and the expected place or places of enforcement.

ICC Arbitration without Emergency Arbitrator

If the parties wish to exclude any recourse to the Emergency Arbitrator Provisions, they must expressly opt out by adding the following wording to the clause above:

The Emergency Arbitrator Provisions shall not apply.

Expedited Arbitration

The ICC Arbitration Rules provide for use of an expedited procedure in lower-value cases. If parties wish to exclude the application of the Expedited Procedure Provisions, they must expressly opt out by adding the following wording to the clause above:

The Expedited Procedure Provisions shall not apply.

Parties wishing to avail themselves of the expedited procedure in higher-value cases should expressly opt in by adding the following wording to the clause above:

The parties agree, pursuant to Article 30(2)(b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply irrespective of the amount in dispute.

If parties wish the ceiling for the application of the Expedited Procedure Rules to be higher than that specified in those Rules, the following wording should be added to the clause above:

The parties agree, pursuant to Article 30(2)(b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply, provided the amount in dispute does not exceed US$ [specify amount] at the time of the communication referred to in Article 1(3) of the Expedited Procedure Rules.

Standard ICC Arbitration Clause without Publication of Awards

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. No award or procedural order made in the arbitration shall be published.

Multi-tiered Clauses

ICC Arbitration may be used as the forum for final determination of a dispute following an attempt at settlement by other means such as mediation. Parties wishing to include in their contracts a tiered dispute resolution clause combining ICC Arbitration with ICC Mediation should refer to the standard clauses relating to the ICC Mediation Rules.

Other combinations of services are also possible. For instance, arbitration may be used as a fallback to expertise or dispute boards. Also, parties who resort to ICC Arbitration may wish to provide for recourse to the ICC International Centre for ADR for the proposal of an expert if an expert opinion is required in the course of the arbitration.

Other recommendations

The parties may also wish to stipulate in the arbitration clause:

• the law governing the contract;
• the number of arbitrators;
• the place of arbitration; and/or
• the language of the arbitration.

The standard clause can be modified in order to take account of the requirements of national laws and any other special requirements that the parties may have. In particular, parties should always check for any mandatory arbitration. For example, it is prudent for parties wishing to have an ICC Arbitration in Mainland China to include in their arbitration clause an explicit reference to the ICC International Court of Arbitration.

The following language is suggested for this purpose:

“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

Make special arrangements where the contract or transaction involves more than two parties.

The essential aim of this book is to discuss whether a non-contractual model of arbitration is theoretically sound. Before doing so, however, I would like to show that this discussion is not only academic. Arbitration has important advantages which make it a better mode for resolving international commercial disputes. The proposed model would thus actually improve international dispute resolution.

Although arbitration has several advantages, one of them is critical and might explain alone why it has become the dominant mode of resolution of international disputes: it offers a fairer process. But arbitration also saves public resources and enables the parties to design the process which fits best their interests.

I    A Critical Advantage: Enhancing Fairness

The most important advantage that arbitration offers is a fairer process. The arbitral process is fairer in two ways. First and foremost, the adjudicator is more neutral. Second, the parties are put on a more equal footing.

A)    Neutrality

The reason which probably best explains the success of international commercial arbitration is the fear of the home-town advantage. Whether arbitration is better than litigation can be debated in a domestic context. But, for the resolution of international disputes, one single feature of arbitration makes the whole difference. As a leading arbitration practitioner and scholar has put it:

That is why the debate about the supposed advantages of arbitration, whether they are accepted or denied, must stop at the border if it is to remain at all coherent. Is it quicker? Is it less expensive? Is it less disruptive because it is confidential and informal? (…)

In international arbitration, all these elements of evaluation fade into relative insignificance when contrasted with a criterion that is dominant here although it is, by definition, irrelevant in the national context. (…) That unique criterion is neutrality.

Courts are not perceived as neutral when they decide disputes between locals and foreigners. It is well known that, unfortunately, corruption is rampant in many jurisdictions of the world. It is also well known that independence is not a luxury that many judiciaries can afford. In such cases, it is not even clear that the mode of dispute resolution offered by the relevant national courts may be properly termed adjudication. The game has other rules, that the parties are free to follow if they so wish. But if they would rather have a neutral and independent third party decide their dispute, an alternative must be found. There is no international commercial court. Arbitration seems to be the only option. Of course, there are quite a few jurisdictions where the judiciary is a truly independent power. As a result, it could be argued that another option is to litigate before the courts of those jurisdictions. However, the superiority of those courts, in this or in any other respect, would never be accepted by the parties originating from jurisdictions where courts are not to be trusted. Moreover, judges in great democracies may be independent, but still be capable of anti-foreigner bias. If even a few instances of actual bias are made public, this will be enough to create a fear among all foreigners. Such cases will exist in most legal orders. Sometimes, there will be less anecdotal evidence, with the same devastating consequences. The only workable solution is thus to find an alternative to national courts altogether. This alternative is arbitration. As a private, non-national mode of dispute resolution, it does not raise any of the concerns discussed so far. An arbitral tribunal is not a public entity subject to the influence of any State. It will typically be composed of private individuals who are nationals of different States.

Moreover, it is also likely that arbitral tribunals are typically more neutral culturally. Most courts are composed of individuals whose training, background and experience are overwhelmingly national. Even if they are willing to be open to foreign customs, practices and realities, they are likely to see the world through their cultural lenses. There will be many occasions to misunderstand the facts and assume that what was not discussed is not different from what they have personally experienced. By contrast, arbitrators sitting in an international panel are constantly reminded of the international nature of the dispute and the likelihood that the experiences of the other actors of the process are essentially different. An international panel is therefore likely to be more open minded and thus to understand more often than not the context of the disputes and the facts.

The private nature of arbitral tribunals, however, raises the concern of another kind of bias. As the parties typically each appoint one arbitrator, two out of the three members of the tribunal can be suspected of wishing to favour the party who appointed them in order to be reappointed. Most arbitration specialists, in particular experienced arbitrators, claim that this rarely happens. Certainly, virtually all arbitration regimes provide that arbitrators are under a duty to be impartial. The third arbitrator, who will often be the president of the tribunal, will have no incentive to be partial, and it may then be that his presence makes it difficult for the party-appointed arbitrators to favour too zealously the interests of the party who nominated them. Indeed, it is interesting to note that arbitral awards are often unanimous. However, such a hidden agenda of clientelism cannot be excluded. Yet, it must be emphasized that such a problem does not concern the entire tribunal, but one of its members. The third arbitrator, who will not have been appointed by one of the parties, will have no such bias. The other party-appointed arbitrator will either be impartial, or be biased towards the other party, thus cancelling the bias of the first party-appointed arbitrator. A world of unbiased arbitrators would be a better world, but a world of biased arbitrators sitting in unbiased tribunals is already a better world than the world of national courts. Certainly, parties resorting to international arbitration continue to draft arbitration clauses allowing them to each appoint one of the members of the tribunal. They rarely choose to confer to a third party the power to appoint all the members of the tribunal. While this may above all show that they want to keep some control over the experience and the professionalism of the tribunal, it also suggests that the incentives of individual arbitrators are not important causes for concern.

B)    Equality

Arbitration is also a fairer process because it offers procedural equality. Most arbitral regimes expressly provide that arbitrators are under the obligation to treat the parties fairly and equally. More importantly, most national laws of international arbitration allow the challenge of arbitral awards made in violation of procedural fairness. As awards cannot be challenged on the merits in most jurisdictions, this ground has become very important in practice. Experienced arbitrators know that losing parties may rely on any procedural unfairness to try to challenge the award, as typically they will have no other ground to challenge it. As a consequence, experienced arbitrators take procedural fairness extremely seriously. Thus, the practice has developed to offer the most extensive procedural equality to the parties. Each party is given the very same number of days to prepare at each stage of the procedure. If one party is late by a few days, the other party knows that the tribunal will award it the exact same amount of extra time if it so requests. Parties are also awarded the same time to argue their case, sometimes to the minute. This may seem, and indeed is, quite formal, but it prevents parties from even attempting to argue that they were not on an absolute equal footing in the procedure. A consequence of the emphasis put on procedural equality is that national practices which do not comport perfectly with procedural equality are banned.

II    Two Other Advantages

In international disputes, the most important advantage of arbitration is to offer a fairer adjudicatory process. But arbitration also has two other important advantages, which I present below. It saves public resources, and it offers a process which is more flexible.

A)    Saving Public Resources

The issue of the comparative cost of arbitration and litigation has traditionally been addressed from the perspective of the litigants. This is because the goal of the authors who discuss the comparative advantages of arbitration and litigation is to assess whether the parties should decide to resolve their dispute by way of arbitration, or not. Therefore, they logically take their perspective. However, it is probably unwise to generalize in this respect. Arbitration can be cheaper or more expensive, depending on a variety of factors.

If one takes the perspective of the State, however, the issue becomes very different. Arbitration is a private mode of dispute resolution, which is entirely funded by the litigants. As a result, it obviously saves public resources. Arbitral tribunals decide disputes which would have otherwise been decided by courts. In many jurisdictions, public resources are scarce. Policies which entail public resources savings are therefore likely to be particularly appreciated by policymakers. Diminishing the docket of courts has certainly been a critical factor in the promotion of alternative dispute resolution in many legal orders. It demonstrates that many policymakers would regard this consequence of the proposed model as critically important.

Yet, the desirability of a policy cannot be assessed by examining its direct effect on public resources only. If such policy also entails costs, a cost–benefit analysis must be conducted in order to determine whether the benefits outweigh the costs. As far as the proposed model is concerned, two series of costs can be identified. First, the private resolution of disputes shifts costs from the State to the litigants. The litigation costs of the parties increase. Secondly, courts serve functions other than dispute resolution that private adjudicators may not serve, or at least not as well. The proposed model may then entail societal costs. The proposed model will only be beneficial if the benefits outweigh the costs. I conduct this cost–benefit analysis in Part IV, and conclude the costs entailed by the proposed model are limited and that it is thus clearly beneficial. At this stage of the book, I would like to make a more limited point. Irrespective of my findings and indeed of critiques of alternative dispute resolution, arbitration has been promoted in many legal orders for several decades. This indicates that either the policymakers have conducted a cost–benefit analysis and have also concluded that the benefits outweigh the costs, or that saving public resources is so important that they would rather ignore or bear the costs entailed by private dispute resolution than stop promoting alternative dispute resolution. In any case, for those policymakers, saving public resources will be perceived as an important advantage of the proposed model.

This advantage will be even bigger in legal orders where public adjudication is more expensive. The costs of public adjudication are higher in some legal orders than in others. This may be so for a variety of reasons. Judges can obviously be paid different salaries. A different number of judges and staff may be involved in the settlement of each dispute. The civil procedure of each jurisdiction may lead judges to spend more or less time on each case. This last difference may be the one which makes the biggest difference. In the common law world, trials last several weeks. Judges then draft lengthy decisions. In the civil law world, even in important commercial cases, hearings can last less than an hour. Judges will then typically draft much shorter decisions. Unsurprisingly, judges in the common law tradition typically handle significantly less cases than judges in the civil law tradition. It follows that, in those jurisdictions where adjudication is more expensive, saving public resources is likely to be a very powerful argument. In those jurisdictions where adjudication costs less, it will be a less powerful argument. But arbitration will then be attractive in a way unknown to more expensive jurisdictions: allowing the parties to design the arbitral process in order to increase the resources dedicated to the settlement of the dispute, and improve the adjudicatory process.

B)    Designing Process

The second advantage that arbitration offers is procedural flexibility. The parties have the power to design the arbitral process. They can determine the procedural rules which will be applicable during the arbitration. This procedural flexibility can be used in different ways. The parties may shape a process which is only slightly different from the process of the court which would have decided the dispute in the absence of an agreement to arbitrate. But the parties may also wish to shape a process which will be very different from the alternate judicial process, so much so that it may become almost as important an advantage as the fairness of arbitral process.

The clearest example is how parties from jurisdictions where less public resources are invested in the judicial process may wish to design a more costly mode of dispute resolution. For instance, the parties may wish to present their case orally for more than a few minutes. They may wish to seek assurance that the adjudicators will carefully read and dedicate as much time as will be necessary to the study of their written submissions. They may wish to have the adjudicators hear witnesses. If arbitration gives the parties the possibility to enjoy a process which will be different on so many accounts, it not only gives them flexibility but also gives them an entirely different commercial justice: more serious, more accurate, more satisfying.

Let us take an example. Here is a French major company. It has a commercial dispute with a foreign company. If the case is litigated in France, it will go before a French commercial court. French commercial courts are staffed by members of the business community, who serve part-time as judges. There is no requirement that they have a legal training. Hearings before French commercial courts typically last less than an hour. Witnesses are virtually never heard by the court. In any case, a French rule of evidence makes evidence originating from any of the parties inadmissible, which means that no employee of any of the two companies may validly testify. If this company goes to arbitration, it will be able to appoint a prestigious jurist as an arbitrator, and so will probably its opponent as well. The hearing will last for several days. Witnesses will be heard, in particular employees who negotiated the contract for each company. The parties will expect the arbitrators to study carefully all the written submissions and the evidence submitted. It will cost more to the parties, but the French company will clearly see what it is getting for its money. The arbitral process will not be marginally different; the arbitral process will be essentially different.

Arbitration may enable the parties who can afford it to avoid the poor process that available courts offer, and to benefit from a better justice. Critics may argue that this creates one type of justice for the poor, and another type of justice for the rich. Further, it could be argued that offering an alternative to those who can afford it diminishes their incentives to work at improving the civil procedure of their country of origin. These criticisms may be fair. However, prohibiting arbitration is not an option, as a neutral forum is needed to decide international disputes. For some commercial parties, resorting to arbitration also means obtaining a better justice. Good for them.

III    Disadvantages

Arbitration does not only have advantages. It also has disadvantages. Some of them are undisputed, and acknowledged even by arbitration’s advocates. For instance, it is admitted by all that arbitral tribunals lack some of the remedies which are available in litigation, such as the contempt power, and that the contractual foundation of arbitration is an obstacle to the efficiency of the arbitral process. Yet, nobody has ever argued that these disadvantages outweigh the advantages of arbitration.

The critics of arbitration have a different point of view. They strongly criticize arbitration, on many accounts. They argue that arbitrators lack democratic legitimacy, that their decisions are not subject to appellate review, that the decline of adjudication entails important social costs. These critiques are severe. Logically, they lead their authors to conclude that the disadvantages of arbitration are so high that they outweigh the advantages. It is thus necessary and important to address these issues. I will not do it now, however, but will do so in Parts III and IV. This is because these critiques would not merely cancel the advantages of arbitration that I have articulated. In the model that I propose, the problems that these critics identify would not only remain, but actually get more acute. Therefore, they are likely to become more specifically critiques of the proposed model.