Applicable Laws in International Commercial Arbitration

This article is written by Akshat Mehta, a student at the Institute of Law, Nirma University, Ahmedabad, Gujarat. In this research article, he has tried to highlight the significance of Arbitration in parlance to International Commercial Transitions. Also, he has mentioned the applicable laws in International Commercial Arbitration which could settle the disputes more effectively and efficiently.

INTRODUCTION

With the growing pace of Globalization, transitions between companies or parties of two different countries have gradually increased over the years. But, these increased global transitions have also contributed towards disputes among the parties involved. Some parties prefer to approach the International Court of Justice, National Courts, and International Dispute Resolution Centers while some prefer to follow Arbitration and various other International Conventions and Treaties for the resolution of disputes. Most of the companies are now a day’s optimistically opting for Arbitration centres for the resolution of disputes because normal court settlement takes more time and money to settle the minimal disputes which could be easily sought out by the companies out of court. Arbitration centres usually focus more on the material facts of the case while resolving any matter. Material facts in the international commercial arbitration cases include the hearing witnesses, zest of the meetings, and clauses of the agreement or contract. In this article, I will be focusing on the possible mechanisms that arbitrators usually refer to while hearing a matter concerning International commercial transition.

Need for International Commercial Arbitration

1. Surpassing National Frontiers: Whenever any individual crosses the boundary of two nations he automatically enters in one legal system from another and the things which are permissible in one nation might not be necessarily permissible in another. In the same way, when two companies from different nations engage in any kind of business activity the applicable laws concerning nations automatically gets applicable and companies often end up violating such laws and hence the need for the arbitration cell is established.

2. Doctrine of Autonomy of Parties: So far as international contracts are concerned the ‘Doctrine of autonomy of Parties’ prevails, which purposefully states that parties are free to choose by themselves what laws will be applicable to their contract. Now, the problem with this doctrine is that in each and every business transition there will be one party who is in the superior bargaining position, and every time that party will try to have such clauses and laws in the contract which will eventually benefit them only. Here comes the need for arbitration cells to act as a watchdog where one party is unjustly enriching its interests. Also in such a situation, the contract is declared as ‘Unconscionable Contract’ which doesn’t adhere to the principles of Justice, Equality, Good Conscience, and Fairness.

3. Recognition by International Convention: Generally if parties tend to seek resolution of disputes at courts in one or the other nation to which the party belongs, lex terrae i.e. Law of the Land applies and also it takes a longer time to get the disputes resolved but, if companies opt for resolution by arbitration then they can have the freedom to choose the applicable international law on their contract. There are various International Conventions available for this purpose such as The European Convention (1961), The UNCITRAL, rules of International Criminal Court, The Washington Convention (1975), The New York Convention (1959) and United Nations Convention on Contracts for International Sale of Goods [CISG] (1980).

Applicable Laws

Let’s discuss some of the applicable laws in the arena of International Commercial Arbitration:

1. National Law: National Law is applicable in the cases where the state or state-sponsored entity is a party to the contract and at the same time party to the dispute. In such cases, the law of that country will be applicable to which the state the sponsored company belongs to. But, over a period of time, it seemed that the dispute remains unresolved if both the parties or companies are government-sponsored, in such a case it is very difficult to decide which country’s law will prevail and a dispute remains unsettled for a longer period of time. Other than dispute related to ‘National Law’, there are also some other disputes which could remain the contract unsettled are:

a) Unsuitability of International Trade

b) Unfair Treatment by one of the party or government concerned

c) Conflicting National Interests

In the event of such issues certain ‘Stabilization Clauses’ were included at the later stage so that disputes could be settled and an agreement could be performed in a harmonious manner.

2. Public International Law: As per the older applications either Public International Law is acceptable or National Law is acceptable. In Serbian leans case the permanent court held that “any matter in which state is not a party, will come under the ambit of International Law”. But, presently this narration doesn’t hold true because Public International is no longer limited to states, it does also includes organizations like UN, ICC, etc. and also the emergence of Transnational Laws gives room to new International Commercial Trade Law.

3. Concurrent Law: It often seemed in the International Commercial Arbitration that after signing the contract states have moulded the contract according to the advantages of the state. For settling such disputes Arbitration often uses National Laws or International Conventions.

4. The Tronc Commun Doctrine (or Combined Laws): This doctrine is based on the proposition that parties are free to choose their own ‘National Laws’ in order to establish a common consensus over International Commercial Arbitration. In such cases arbitration cells drafts contracts in lieu of the combined laws prevalent in both the nations so that any kind of dispute could be avoided at the later stages.

5. The Islamic Shariat Law: Most of the contracts and agreements in the Islamic countries are governed according to the Shariat Law as per the holy Quran but, with the emergence of International Laws and Conventions many Islamic countries have shifted towards UNCITRAL and CISG for settling disputes through International Commercial Arbitration Mechanism.

6. Transnational Laws: The positive idea of Arbitrators behind shifting to Transnational Laws is to minimize the efforts and to provide the exact solutions of disputes concerning the matters specifically related to conventions and laws. For example, the concept of ‘Lex Mercatoria’ is referred by the whole International Business Community in order to settle any dispute related to International Business Transition, General Principles of Law were being referred by the International Criminal Court in order to settle any criminal the dispute between two or more nations and in the same way UNIDROIT principles were being referred by International agencies to draft the contract on International platforms so that uniformity could be achieved.

7. Principles of Equity and Good Conscience: As I have already mentioned about the ‘Unconscionable Contracts’, the International Commercial Arbitration often gives decisions on moral grounds and award compensation because the clauses of the contract or the intentions of one of the parties or both the parties involved don’t adhere to the principles of Justice, Fairness, Equality, and Good Conscience.

CONCLUSION

With the growing arena of Globalization, arbitration as a dispute resolution mechanism has emerged to a great extent. Multinational Companies, Global Business startups, and Foreign Investors often try to invest and engage in business activities in foreign countries and while doing so they have to keep a note of National Laws of the countries, International Laws and also about various International Conventions. In an event of any dispute companies have to face many issues regarding Jurisdiction and Maintainability of the case if they approach National or International Courts but, if companies prefer to have an arbitration mechanism for the resolution of such disputes then they can resolve such disputes much efficiently and at a very low cost. In this article, we have already seen the various applicable laws in International Commercial Arbitration.

REFERENCES

[1]. Rituparna Padhy, Applicable Law in International Commercial Arbitration (September 8, 2019),http://lawtimesjournal.in/applicablelawininternationalcommercialarbitration/#:~:text=Difficulties%20arise%20when%20one%20or,the%20four%20laws%20is%20different%E2%80%9D.&text=If%20the%20parties%20have%20not,parties’%20contract%20or%20international%20principles.

[2]. The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem? https://scholar.smu.edu/cgi/viewcontent.cgi?article=3599&context=til.

[3]. Anand Pratap Singh, Choice Of Law: Problems In International Commercial Arbitration (13 January 2017), https://www.mondaq.com/india/arbitration-dispute-resolution/559850/choice-of-law-problems-in-international-commercial-arbitration.

[4]. International Arbitration, Choice of Law in International Commercial Arbitration (March 28, 2017), https://www.international-arbitration-attorney.com/choice-of-law-international-arbitration/.

[5]. Applicable Law in International Commercial Arbitration, http://www.ketencilaw.com/applicable-law-in-international-commercial-arbitration.html.

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