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The Rise of International Commercial Arbitration as a practice

Commercial arbitration, as the words suggest, is a means of trade dispute settlement, by referring the matter to a third person, namely an arbitrator, who is selected by the parties. An arbitrator can be a single person, or an arbitration board, which usually consists of three persons. The evidences and arguments of the case are presented to the arbitration tribunal, the decision of which, is binding on the parties as previously agreed upon by them.

In medieval times, commercial arbitration was used to resolve disputes between merchants in fares and marketplaces, primarily in England, and other European countries, including the Mediterranean and the Baltic Sea trade. When the courts became empowered to enforce the parties’ agreement to arbitrate, the use of commercial arbitration surged. The first statute was the English Arbitration Act of 1889. It was later consolidated into an act of 1950 and adopted by most countries of the British Commonwealth. It was followed by the arbitration statute of the state of New York in 1920, and the Federal Arbitration Act in 1925.

With globalization, international trade across international borders has expanded enormously, which has impacted the world economy by inter-weaving the economies of the world. The growth in international exchange of capital, goods, and services resulting from the growing needs and wants, has given way to alternative methods of resolving the disputes that arise from those exchanges. International Commercial Arbitration refers to one such method of dispute resolution that arises under international commercial contracts. It is often used to avoid litigation, and secures a degree of freedom to the parties to make decisions about the rules.

International Commercial Arbitration emerged as an accepted method of dispute resolution about a 100 years ago. It was in 1923 when the League of Nations adopted the Geneva Protocol on Arbitration Clauses. Later, in 1927, the Geneva Convention for the Execution of Foreign Arbitral Awards was adopted by the League of Nations. However, the protocol and the convention were not without difficulties, and to remove the obstacles, it was decided that the two would be combined into a single convention, which resulted into the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards in New York.

In 1961, the European Convention on International Commercial Arbitration was adopted. It is imperative to note that this was the first international instrument to have the words “international commercial arbitration” in the title. The need for an alternate method of international trade dispute resolution was acknowledged formally, indicating a change of attitude towards the method.

The United Nations Conference on International Trade Law (UNCITRAL) was established by the General Assembly in 1966 which recognized the hurdles that were faced by international trade being governed by national laws. It sought to remove those hurdles and make the exchange, and the related matters easier for the parties by modernization and harmonization of rules regarding international trade.

The Model Law on International Commercial Arbitration was adopted by UNCITRAL in 1985. It provides for rules of arbitration that govern international trade, and establishes standard procedure for dealing with international commercial arbitration. It has been widely accepted, but there is a scope for its enhancement to make it more effective.

Commercial arbitration can either be institutional or ad hoc. Institutional arbitration refers to the one where the parties consent to have an arbitral institute administer the dispute whereas an ad hoc arbitration is the one where the parties choose to have their own rules of arbitration.

The opening up of Indian economy after 1991 brought investors from other countries, who prefer arbitration as the dispute resolving method rather than the litigation process. These commercial arbitrations are governed by the Arbitration and Conciliation Act, 1996. However, in the past two decades, amendments have been made to the Act (in 2015, 2018 and 2019) with a view to reduce the role of courts in arbitration process, and give boost to institutional arbitration by establishment of Arbitration Council of India.

According to Section 2(1) (f) of Arbitration and Conciliation Act 1996, “international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, where at least one of the parties is:
  • Any individual who is a national of, or habitual resident of, any country other than India, or
  • A body corporate which is incorporated in any country other than India, or
  • An association or a body of individuals whose central management and control is exercised in any country other than India, or
  • The Government of a foreign country Allowing parties to have an alternative like arbitration is not only investor-friendly, but also eases the burden of courts. Moreover, if the parties are not satisfied with the decision of the tribunal, they may make an application to the court under Section 34 to set aside the arbitral award.
It can be concluded that International Commercial Arbitration has proved to be an amicable, and a preferable method of dispute resolution in the international trade sphere. It has paved way for dispute resolution concerned with international trade without having to go through with court proceedings. India, with its growing economy, recognizes the need for an effective and efficient way of disputes, and has been an active player in the growing field of International Commercial Arbitration, successfully keeping up with the changing needs of the parties.

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