Arbitration

Arbitration as a Solution for Protracted and Intractable Conflicts

Can arbitration serve as an alternative mechanism of dispute resolution, as opposed to "conventional" methods such as submitting a dispute to an international or national court or seeking a negotiated agreement? Historically, arbitration was successfully used by the ancient Greeks and the Vikings to solve interstate and intrastate conflicts.In more recent history, arbitration played an important role in solving international border disputes.[1] Currently, however, negotiation and mediation are the prevalent mechanisms for resolving international conflicts. This fact can be attributed to a lack of established enforcement mechanisms for international law, and the resulting difficulty of enforcing international arbitral awards. However, arbitration continues to be an effective tool for conflict resolution, especially for international and national commercial or investment disputes, as well as labor disputes.

What is Arbitration?

Arbitration is an extra-judicial mechanism through which conflicts can be solved. It is an adversarial process, which is governed by the principle of party autonomy. This means that it is the parties to a conflict who determine whether they want their dispute to be solved through arbitration. Thus the arbitrators derive their authority solely from the parties. Parties are free to choose the place (seat) of arbitration, and often do so through a contractual clause before a dispute emerges. Arbitration processes are convened on an ad hoc basis, and the parties influence the composition of the arbitration panel and/or the selection of a specific arbitrator. The parties determine the "rules of the game," either by designing the process themselves or by choosing the seat of arbitration. In the latter case the parties agree to make use of existing institutions, which provide facilities and a set of adopted rules that govern the process.

In most cases, arbitral awards are conclusive, final, and binding. However, it can occur that the unsuccessful party challenges the award by claiming that the arbitrators exceeded their power, or by asserting that they cannot be bound by a foreign award. In a small number of cases, national arbitration legislation allows for the right of appeal.

Current Domains of Arbitration

Though historically important for the resolution of non-commercial international disputes, arbitration is not often used in that way currently. Today it is widely used for commercial and investment disputes by states and private entities.

The fact that arbitration allows parties to determine the rules of procedure is particularly advantageous in cases where companies involved in commercial and investment disputes are founded in and governed by different legal systems. Arbitration allows the parties to determine the seat and rules of procedure through a contractual arbitration clause, and hence preempts conflicts over jurisdiction. The UNCITRAL Arbitration Rules, adopted by the U.N. General Assembly in its Resolution 31/98, are a useful guide to parties, as they provide model rules of procedure. The parties' ability to choose an arbitrator guarantees high quality decisions, because they can nominate experts in the field. Furthermore, disclosure of trade secrets is avoided by the traditional privacy of arbitration procedures.

Institutions and bodies, which provide facilities and framed rules for the arbitration of commercial disputes, exist in practically all countries. Even though these are considered national institutions, international as well as national disputes can be submitted to them. The World Bank developed a mechanism to solve international investment disputes through arbitration or consultation in 1966, in order to foster private investment in developing countries. The International Center for Settlement of Investment Disputes (ICSID) was created to provide a reliable dispute resolution mechanism to private investors who take the risk of investing in countries with unfavorable investment climates. The rationale for the creation of this institution is that the guarantee of a fair process renders investment in "political risky" countries financially justifiable. The ICSID adjudicates over disputes between states and the investing private entity of another state.

The Diminishing Role of Arbitration for Settlement of Disputes Between States

Arbitration proved its effectiveness as a dispute resolution mechanism during and after the American Civil War.[2] This positive experience led to the desire for institutionalization of international adjudication, and subsequently the Permanent Court of Arbitration was created in 1899. It is worth mentioning that the name, Permanent Court of Arbitration, is misleading, as it is neither a court, nor permanent. Its role is to provide interested parties with a list of qualified arbitrators and a set of rules for the settlement of their disputes.

Generally, however, countries show reluctance to submit their disputes to arbitration. What explains this behavior? The flexible but formalized procedure before an arbitration panel or an arbitrator is often too long and expensive, and thus undermines the utility of the mechanism. In addition, there is another, more compelling reason for states to avoid arbitration as a means of resolving disputes. Arbitration is characterized by an adversarial process, which in most cases ends with a win-lose solution. Without a formal enforcement mechanism, such an outcome is less sustainable and can lead to re-escalation of conflict or non-abidance to the decision. Thus an arbitration award or court decision should only be sought if the parties fail to reach a cooperative, negotiated agreement that could provide them with a win-win solution.

Problems with Enforcing Arbitration Awards

Theoretically, the submission of the parties to arbitration implies that the parties will agree to carry out the award without delay. However, this can only be true for situations in which the disputants are seeking a conclusive settlement of their conflict. Parties submit themselves to arbitration only when they are incapable of reaching a negotiated agreement. In adversarial dispute resolution procedures, parties are hoping to see their interests served. If defeated, they are likely to consider options that promise more favorable outcomes, by challenging an obtained award or by trying to evade implementation of the decision.

For entirely national arbitration awards, those granted by a national body to two private entities both subject to the same national legislation, laws provide a solid framework for the enforcement of decisions or for options to transfer the matter to a national court. The implementation of international awards, however, can be more than difficult in cases where parties decide not to abide by the decision. One factor which can make a national court more or less willing to enforce an award is the nation in which the seat of arbitration is located. Yet, the determination of the seat can become a contentious matter, as different national jurisdictions treat this issue differently. Also, while there are a number of international and bilateral treaties that govern the implementation of judicial awards under foreign jurisdiction, there is no such mechanism for arbitration awards.

Litigation versus Arbitration versus Mediation

Characteristics Litigation Arbitration Mediation Decision-making authority Jurisdiction determined by law Parties decide to submit their dispute to arbitration (often through contractual arbitration clause) Parties agree to mediate Jurisdiction is determined by the circumstances of the case Parties choose the seat Often takes place in neutral territory Courts are limited to cases that fall within their jurisdiction Arbitrators decide on disputes submitted to them Mediators decide whether or not to take cases submitted to them. Decisions made by judge or jury Decisions made by arbitrator(s) Decision made by parties Can be appealed with cause Rarely can be appealed Parties can decide not to settle Procedure Open to the public Confidential Confidential Adversarial Adversarial Cooperative Process determined by procedural laws Flexible process Flexible process Fixed set of procedures Parties choose the "rules of the game" Parties and mediators determine ground rules Characteristics of third party involved Judges are pre-appointed Arbitrators are selected by the parties Parties select a mediator Judges often lack technical expertise Arbitrators are experts on the issues Mediators are process experts, may or may not be substance experts Judges are a disinterested third party Arbitration panels often include partial as well as non-partial arbitrators or One non-partial arbitrator Mediators can be outsider-neutrals or insider partials. If insider partials, they often work with an outsider-neutral. Institution Permanent Ad-hoc panels Ad-hoc End of process End determined by procedural requirements Parties can determine an end date (fast track arbitration) Ends once cooperative agreement is reached, or parties decide not to settle Win-lose solutions Win-lose solution (unless arbitrator negotiates a win-win outcome) Win-win solutions Enforcement Established enforcement mechanism National regulations provide enforcement mechanism International arbitration often lacks an established enforcement mechanism Implementation of agreement depends largely on the parties' goodwill, but the court may enforce in some circumstances Decision subject to revision (unless decision by the Highest Court) Award conclusive, final and binding (right of appeal is the exception) No appeal once settled; other process can be used if no settlement is reached.

[1] Case Studies: United States versus Great Britain: http://www.bartleby.com/65/ws/WshngtnTR.html, http://www.bartleby.com/65/al/Alabamac.html, Egypt versus Israel: http://www.colorado.edu/conflict/peace/example/roth7308.htm

[2] Ibid.

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