This report focuses on the study of the arbitration system in terms of international commercial transactions. Arbitration is understood as a contract concluded between the parties to a foreign economic transaction on the establishment of procedural rights and obligations. They are aimed at transferring possible disputes to the parties by mutual agreement, a non-governmental arbitration institution, or ad hoc arbitration.
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Three arbitration types of laws include national laws, treaties, and international laws, each of which should be considered in combination with others. Furthermore, the paper discusses the advantages of the international arbitration system in the commercial arena, such as prejudice, irrefutability, and inclusivity. With the growing economic advancement of the UAE, the involvement of this country in the global system is of great importance. Accordingly, the specifics of implementing the international arbitration system in the UAE are provided.
International commercial arbitration is one of the most important institutions of modern law. Having a long and multifaceted history of legal development, it has become a well-known and often used institution for the settlement of foreign economic disputes along with a judicial procedure. At the same time, there are many controversial issues in the legal regulation of the activities of the international commercial arbitration court. They are associated with the selection of the applicable law, arbitration agreements as the foundation of the court’s activity, and other issues, which indicate the relevance of the issues to which this report is devoted. The purpose of writing this work is to establish the essence and features of the functioning of such a judicial institution as an international commercial arbitration system.
Types of Arbitration in Global Commercial Transactions
The review of the pertinent academic evidence shows that there are several types of international arbitration. The institutional, also known as permanent, arbitration is formed in the context of commerce, associations, or unions. These commercial arbitrations function on an ongoing basis, with their particular rules of procedure and charter. Institutional arbitration is based on national law or the rules of the relevant international commercial arbitration. In complex cases that are difficult to resolve or there are problems of the law applicability, this type of arbitration is most preferable.
The isolated, or ad hoc, arbitration is created by the parties to consider a specific case, which is not administered by any institution. After the trial and decision, the arbitration ceases to exist. The parties are to determine the rules for the election of arbitrators, the arbitration process, and the place of the arbitration. The basis of isolated arbitration is almost unlimited independence of the will of both parties involved. It is considered the most effective option in disputes that are associated with actual circumstances, in particular, determining the price of goods, checking their quality, and so on (Gaultier).
The concept of international commercial arbitration as a body that is not bound by the national law of any state or by international treaties is the most widespread today. The decisions on disputes are made according to the general principles of law, principles of justice and morality, legal customs, and/or international commercial law.
The main criterion for delimiting the competence of arbitration courts is the sphere of legal relations from which the dispute arose. Consequently, the jurisdiction of the arbitration courts includes the consideration and resolution of legal cases that occur in the field of entrepreneurship. The essentials include a foreign composition, the verification of the legality of judicial acts in these cases on appeal, cassation, supervisory review, and attention to the newly discovered circumstances. For example, the generalization of application of national and international legal acts in the course of consideration of economic disputes is one of the key processes (Gaultier). The development of proposals aimed at improving regulatory legal acts on the resolution of economic disputes can be noted as another widespread instance.
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The most significant aspect of the legal essence of arbitration is its non-state character, which allows for distinguishing it from a state court. Arbitration is competent to consider a dispute only in case if there is an arbitration agreement between the disputing parties. In other words, if both parties express their consent, it is possible to initiate the arbitration procedure. The court is a body of the legal mechanism of the country, which is vested with competence due to legislation as well as a direct indication of national law.
The difference in the legal nature of these jurisdictional bodies is especially pronounced in the case when the conciliatory power of the arbitration is not sufficient to resolve individual procedural issues. In this case, there is a direct dependence of the arbitration on the state court, which is expressed in the legislative consolidation of the right of the arbitration to appeal to the court. The law establishes the grounds on which, during arbitration, one can turn to the court with a request for the commission of legally significant actions.
The international regulations act is the key source of law regulating international arbitration related to global transactions. They are represented by cross-national acts on international commercial arbitration. These involve the Model Law on International Commercial Arbitration that was adopted in 1985 along with the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules of 1976. The United Nations Economic Commission for Europe (UNECE) Arbitration Rules of 1966 also promotes the formation and functioning of an isolated arbitration. By their nature, these documents are not legally binding yet are only advisory. However, their great importance and filigree technique of the legal language led to the wide applicability of these documents in practice.
The national laws of various states are developed on the basis of the UNCITRAL, which makes it possible to talk about the unification of the arbitration system in this area at the domestic level. Having embodied in the norms of national legislation, the requirements of the Model Law become legally binding and, in addition, are unified naturally. As for the rules of arbitration, their practical application is due to a direct reference to their provisions in the arbitration agreement between the disputing parties. In this case, the arbitration procedure and all related issues are to be resolved only on the basis of these rules. The international treaties are represented by a number of documents of both a universal and regional nature.
An arbitration treaty is an agreement of the parties on the transfer to arbitration of all or certain disputes that have arisen between them in link with any specific legal relationship. The associated conventions include the 1958 UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is universal and brings together over 140 states. The 1961 European Convention on International Commercial Arbitration and the 1966 European Convention establish the Uniform Law on Arbitration to be adopted by the Council of Europe. The 1975 Inter-American Convention on International Commercial Arbitration operates in a set of Latin American states, as well as a number of other conventions.
The literature presents some recommendations on arbitration agreements in international commercial disputes. All the disputes, disagreements, or claims arising from the agreement in the case of an independent arbitration agreement, a specific agreement should be indicated or in connection with it should be identified. Second, it includes the entry into force, conclusion, amendment, execution, violations, termination, and validity, which should be reviewed by the International Commercial Arbitration Court in accordance with its applicable rules and regulations. It excludes the submission to the state court of an application for a decision on the absence of competence of the arbitration court in connection with the issuance by the arbitration. A separate resolution on the presence of competence as on the issue of preliminary character can be formulated.
The national laws identify the position prevailed in the practice and science of international arbitration, in consistence with which the force is given for decisions of arbitration by the law of a particular country. These laws regulate the arbitration process, comprising the authorities of arbitrators. Consequently, the arbitration law is regulated by lex loci arbitri, meaning the location of the law-issuing state. For a long time, the main practical consequence of this approach was that it is difficult for arbitration lawyers or arbitrators to be in countries where they do not know local law.
One decision to the problem is the development of the Model Law on International Commercial Arbitration by UNCITRAL in 1985. The UN recommended this law to all states for uniformity of the law on arbitration procedures and practices of international commercial arbitration. Legislation based on the Model Law is currently in effect in more than 60 countries, including Europe and Asia. However, it does not contain the countries, in which the bulk of the arbitration is piloted, including France, the UK, the US, Sweden, Switzerland, et cetera.
Advantages of the International Commercial Arbitration
The analysis of the cross-national arbitration in the commerce sector reveals a set of benefits that should be discussed to better understand its role. The law governing arbitration proceedings may establish a number of objective additional requirements in relation to arbitrators, which points to the first advantage of competence. In order for the arbitration decision to be valid and recognized by the state, the minimum due process must be followed when it is issued (Kenton and Hirst).
It also launches the need for the arbitrator to be impartial and independent, implying a lack of interest of a person in the results of the case under consideration. Impartiality is a subjective concept, usually defined during the case production, meaning the lack of prejudice of the arbitrators in relation to the subject or party to the dispute. The circumstances, which may be a sign of the prejudice of the arbitrator, are defined by the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration. While this document is not binding, it is often applicable in practice.
Another advantage of irrefutability in the domestic doctrine is considered as the inability to revise the decision of the law enforcement body that has entered into force. The occurrence of an irrefutable property in an arbitral award is identified by the law of the country in which it was issued, irrespective of whether it passed the recognition procedure. In addition, its content should be supplemented by the ban adopted in international practice to reconsider the arbitral award on the merits, as well as some consequences of the doctrine of functus officio (Kenton and Hirst). The term of prejudice is traditionally regarded as one of the positive features of the validity of judicial decisions.
The current procedural legislation does not mention arbitral awards as a basis for exemption from evidence and cannot avert the parties to the negotiation proceedings from challenging. The states’ courts investigate the facts and legal relations established by the conclusion of the arbitration court.
The exclusivity of the arbitral process can be defined as the inadmissibility of the initiation, trial, and resolution by the jurisdictional bodies of cases on an identical lawsuit. As a rule, the latter is to be resolved in an established manner by the decision of the traditional court (Kenton and Hirst). The impossibility for the parties to the arbitration proceedings (their successors) to file a lawsuit identical to that already resolved also provides a uniqueness that offers more opportunities for the parties to support their points of view.
If a party suspects a violation of the principle of impartiality or independence by the arbitrator, it can declare to challenge the case. In a situation when it becomes known about this violation after the consideration, it is assumed to appeal the arbitral award based on this fact. It becomes evident that the arbitration procedure for the consideration of international commercial arguments has significant advantages over the judicial one. Arbitration is particularly democratic as it is a public organization that is neither a part of the system of courts nor an element of administrative and other bodies of the state. The parties can affect all the stages of the arbitral proceedings, beginning with the consent of the businesses and ending with determining the cultural aspects of the arbitral proceedings.
International Arbitration and Its Application in the UAE
The practical issues of international commercial arbitration at present are not defined clearly in the United Arab Emirates (UAE). The issues of applying the measures to secure a claim in the course of proceedings in international arbitration are still unexplored systematically, using the laws of the mentioned country. The decisions of the arbitration tribunals in disputes involving a foreign element, along with other factors, form the tendency for capital, goods, and services to move from one state to another in a certain direction.
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Therefore, the rational conduct of arbitration proceedings urgently needs additional protection in the form of measures to secure a claim aimed at preserving the property of the defendant until the award is made. Only in this way can the risks associated with the withdrawal of assets from the defendant’s legal entity be minimized, and the practical effectiveness of the arbitration proceedings and its attractiveness to entrepreneurs be ensured.
In the UAE, the enforcement of decisions of international commercial arbitrations is carried out, as a rule, according to the procedural rules applicable to decisions of state courts. This procedure has been reflected in both the UNCITRAL Law and the texts of national laws on international commercial arbitration and arbitration courts. However, the possibility of protecting the plaintiff’s claims with the help of preventive measures, including with the help of measures to secure the claim, is not clearly visible in the mentioned documents (“International Arbitration 2019 / United Arab Emirates”).
One can state that the principle of reciprocity in relations between state systems, which does not always work efficiently and constructively, is also valid in this case. There are other specific legal grounds for enforcement by bailiffs or similar bodies of decisions of international arbitration on taking interim measures that do not exist.
Analyzing the effectiveness and convenience of the existing mechanisms for coordinating the actions between international arbitration courts and judicial enforcement services, one can conclude that the state of affairs in this area is unsatisfactory. Such cross-border processes can often take a very long time, and the task of any international arbitration court is to ensure such a high-quality level of drawing up a decision. The measures to secure a claim so that a foreign court will be able to receive the text as soon as possible having checked the definition for compliance with the ordre public is necessary. In accordance with the wording contained therein, a certain action on the basis of which the required actions would be committed is required.
In 2018, the UAE Parliament approved a new arbitration law based on the UNCITRAL Model Law. The Cabinet of Ministers is expected to make a final review of the new UAE arbitration law and, subsequently, it will enter into force after the Supreme Council and Sheikh Khalifa bin Zayed Al Nahyan approval. It is assumed that more in-depth negotiations on its content would not be conducted. Although some laws have stalled in the past, and practitioners believe that a new UAE arbitration law will pass this year. The mentioned new law will replace the Law of the Civil Procedural Countries, which has been in place since 1992 and has a number of pitfalls. Once passed, it will serve as the final part of the country’s floating arbitration system in the field of commercial transactions.
Despite the fact that the final draft is not public, it is anticipated to include the functions of a specified find in other national laws around the world. It is also noted that the law will apply in all cases of the UAE businesses operating globally, with the exception of the Dubai International Financial Center (ADGM) or the Abu Dhabi Global Market (ADGM) (“International Arbitration 2019 / United Arab Emirates”). The latter, which are regarded as free zones, already have different rules within the general framework of the law. The new UAE Arbitration Law is also expected to distinguish between sea and land places to clarify the way the local arbitration system should act when it comes to international issues.
To conclude, the processes of globalization in the international economy actualize the transfer of internal competence of states regarding international business and the resolution of disputes by international organizations without prejudice to their sovereignty. Therefore, the role of the arbitration method in resolving international economic disputes within the competence is growing. It is found that the arbitration system has specific types and forms, while its advantages allow for using it with effectiveness, especially in controversial cases. As for the UAE, the country is expected to adopt a new arbitration law that would meet the requirements of the UNCITRAL. The ADGM and ADGM, the two main commerce centers of the country, already have clearly determined arbitration regulations.
- “International Arbitration 2019 / United Arab Emirates.” Global Legal Insights, 2018. Web.
- Gualtier, Susan. “International Commercial Arbitration.” Hauser Global Law School Program. Web.
- Kenton, Maurice, and Peter Hirst. Worldwide: Advantages of International Commercial Arbitration.” Clyde & Co. 2015. Web.