International Commercial Arbitration as a Method to Resolve Cross-Border Disputes
International commercial arbitration (hereinafter, ICA) is an arbitration court, appealing whereto is one of the alternative methods to resolve cross-border disputes (Alternative dispute resolution – ADR). “International” is a rather conditional definition, since arbitration is established and regulated by national laws. This term refers to the nature of disputes considered, as they are complicated by the involvement of more than one jurisdiction (for example, the presence abroad of one of the parties, the subject of the dispute or the place of performance of the obligation 1).
There are two types of ICA:
- Institutional arbitration, a permanent arbitration institution.
- Adhoc arbitration, formed specifically for consideration of a particular dispute.
One of the most well-known arbitration institutions are:
- International Chamber of Commerce in Paris (ICC);
- Arbitration Institute of the Stockholm Chamber of Commerce (SCC);
- London Court of International Arbitration (LCIA);
- Vienna International Arbitral Centre (VIAC);
- Hong Kong International Arbitration Centre (HKIAC);
- Singapore International Arbitration Centre (SIAC);
- American Arbitration Association (AAA);
- International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation;
- Russian Arbitration Centre at the Russian Institute of Modern Arbitration.
Currently, ICA is a widely applied instrument. This is attributable to a number of advantages that ICA has compared to the litigation, negotiation, mediation. For example, unlike court proceedings, the arbitration procedure is quite flexible. Parties may determine “rules of the game” at their own discretion. They may choose the language of proceedings, the place of arbitration, the number of arbitrators and the procedure for their election. Parties may also agree on additional requirements for the nomination of arbitrators (qualifications, experience in a particular field, knowledge of the language, etc.).
A lot of people are attracted by the confidentiality of the arbitration procedure. However, it should be noted that this advantage is rather conditional. The fact of the arbitration ceases to be confidential once it is required to impose interim measures, to seek evidence or to enforce an arbitral award. Generally, the only possibility to forcibly do this is through national judicial bodies, which inevitably entails publicity and public exposure.
The main and compelling argument in favour of ICA remains the possibility of recognition and enforcement of foreign arbitral awards in the territory of many contracting states to the New York Arbitration Convention.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
The year of 2018 marks the 60th anniversary of the adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter, the Convention). It has been developed by the United Nations and is open to accession by any Member State of the United Nations, any member of any specialized agency of the United Nations, or is a Party to the Statute of the International Court of Justice. As of February 2019, 159 states are parties to the Convention2. The Russian Federation (as the successor of the USSR) has been a party to the Convention since November 22, 1960.
The main purpose of this convention is to create an effective mechanism for recognition and enforcement of foreign arbitral awards. Such mechanism should be applied under unified standards in all participating states. A wide range of parties to the Convention and, accordingly, the possibility of enforcement of foreign arbitral awards in the territory of such states is the main advantage of ICA as a method to resolve cross-border disputes.
The enforceability of foreign arbitral awards is the main advantage of ICA, since there is no other comprehensive international mechanism for foreign judicial awards. Bilateral agreements on legal assistance (which generally set the obligation for states to recognize and enforce each other’s judicial awards) are not entered into by all states. Such local agreements also have a limited number of participants. Therefore, there is a risk of non-execution of a foreign award in the territory of the state which has not entered into the relevant agreement. However, as noted above, one should not underestimate the role of national judicial authorities, since without their assistance ICA is practically powerless.
Procedure for recognition and enforcement of foreign arbitral awards
Procedure for recognition and enforcement of foreign arbitral awards is similar in all participating countries, as it is based on the unified international standard, the Convention. Let us consider this procedure by the example of the Russian Federation, where it is regulated by the Arbitration Procedure Code and the Law “On International Commercial Arbitration”.
In accordance with the rules on exclusive jurisdiction3 an application for the issuance of a writ of execution for the enforcement of foreign arbitral awards shall be submitted to the arbitration court of the constituent entity of the Russian Federation at the debtor’s location or place of residence. In case his location or place of residence is unknown – at the location of the debtor’s (party to the arbitration proceedings) property. The application is submitted in writing and shall be signed by the claimant or his representative. The said application may also be submitted by filling out the form posted on the official website of the arbitration court on the information and telecommunication network Internet4.
The claiming party shall provide a duly certified copy of the arbitral award signed by arbitrators, as well as documents confirming the conclusion of the arbitration agreement. If the arbitral award or agreement is in a foreign language, the party shall provide a duly certified translation of such documents into Russian5.
The application shall contain:
- Name of the arbitration court to which the application is filed;
- Name and location of the international commercial arbitration;
- Name of the claimant, his location or place of residence;
- Name of the debtor, his location or place of residence;
- Information on the foreign arbitral award, recognition and enforcement of which is requested by the claimant;
- Petition of the claimant for recognition and enforcement of a foreign arbitral award;
- List of documents attached.
It should be noted that not all foreign arbitral awards are subject to recognition and enforcement. The Convention sets the reasons on which a court may refuse. Such reasons may include invalidity of the arbitration agreement, non-arbitration nature of the dispute, invalid composition of arbitrators, non-compliance of the procedure with the agreement of the parties, etc. The list of reasons is exhaustive and is not subject to broad interpretation. In other words, participating states shall provide no other reasons in their national laws for the refusal of recognition and enforcement of foreign arbitral awards. This serves as an additional guarantee of their enforceability.
Therefore, the enforceability of arbitral awards abroad, flexibility and confidentiality of the procedure makes ICA one of the most popular methods of resolving cross-border commercial disputes nowadays.
- Clause 3 of Article 1 of Law of the Russian Federation No. 5338-1 “On International Commercial Arbitration” dated 07.07.1993
- Article 38 of Arbitration Procedure Code No. 95-ФЗ dated 24.07.2002
- Article 242 of Arbitration Procedure Code No. 95-ФЗ dated 24.07.2002
- Article 35 of Law of the Russian Federation No. 5338-1 “On International Commercial Arbitration” dated 07.07.1993
Often we do not fully understand the whole complexity of tax and accounting legislation until we face it in practice. One of such examples is the creation of reserves for vacation pay for tax purposes.
June 11, 2019
The tax control bodies acquire more and more tools to identify and control creative taxpayers. For example, one of the most effective tools is the international automatic exchange of tax information.
June 11, 2019
This article describes some of the most frequent and pressing issues raised by a taxpaying controlling person, when calculating the profits of a controlled foreign company.
June 11, 2019
In modern Russian reality, the notary personifies the link between the economic entity and the state. At the same time, there is a tendency to expand the powers of notaries in the legal community, as well as to expand the limits of their liability.
June 11, 2019
On 26 June 2015, Directive EU 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Directive EU 2015/849) entered into force.
June 11, 2019
The third stage of capital amnesty starts in Russia. To be precise, this is not even the third stage, but the fourth, since the first amnesty, announced in 2015, was extended for six months from the initially declared period.
June 11, 2019