Where Has International Commercial Arbitration Come From?

Where Has International Commercial Arbitration Come From?

If we are to understand fully the present role of international commercial arbitration, and what shape it is likely to take in the future, it is important to look at past developments that are the basis for our current system of arbitration. In short, to understand the future you need to understand the past.

Arbitration is a system of justice, born of merchants. In one form or another, it has been in existence for thousands of years.

The earliest law dedicated to arbitration in England was in 1697. In France, the French Revolution considered arbitration as a droit naturel and the Constitution of 1791 proclaimed the constitutional right of citizens to resort to arbitration. It was also included in the Code of Civil Procedure in 1806. The origins of the concept of arbitration in France go back to the ancient courts of Pie Poudre (from the French pied poudreux, meaning vagabond), set up by boroughs to settle disputes between merchants on market days.. The origins of arbitration go back to dispute settlement usages in ancient times, in Europe, in Greece and Rome, including Roman law, and in Asia.

Up until the 20th century, the national courts lagged behind in recognising the decisions of arbitrators. This may be because the courts saw arbitration as a rival, as well as being suspicious about the standards being applied in arbitrations at the time. Even in England, for long a centre for international commercial arbitration due to its pivotal position as the centre for shipping, insurance, commodity and financing businesses, arbitration was initially closely controlled by the English courts.

In 1883 the Court of Common Council of the City of London set up a committee to consider the establishment of a tribunal for the arbitration of trans-national commercial disputes arising within the ambit of the City. The initiative came from the London business community, which was becoming increasingly dissatisfied with the slow and expensive process of litigating in the English courts. As The Law Quarterly Review was to report at the inauguration of the tribunal a few years later:

“This Chamber is to have all the virtues which the law lacks. It is to be expeditious where the law is slow, cheap where the law is costly, simple where the law is technical, a peacemaker instead of a stirrer-up of strife”

In 1919 the world’s business community established the International Chamber of Commerce (“the ICC”). The ICC has been the voice of the international business community and has been a major driving force in the promotion of both arbitration as a mechanism for the resolution of international commercial disputes and the need for international regulations to uphold and support the arbitration process.

As world trade expanded, the need to create a mechanism for international recognition and enforcement of both arbitration agreements and awards in relation to international commercial agreements was regarded as essential.

In 1958 the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the NYC”) was adopted. The NYC provides for international recognition and enforcement of arbitration agreements and awards by national courts. Since it was adopted, the NYC has been the cornerstone of international commercial arbitration and has represented a quantum leap forward for international arbitration. Lord Mustill described the NYC as a convention which: “perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law”. The success of the NYC is illustrated by 3 factors:

  1. 144 countries are signatories to the NYC;
  2. A body of international case law has developed in applying the NYC which has had a direct influence on international arbitration practice and law;
  3. It is accepted that agreements to arbitrate and arbitration awards will be enforced by the courts of the countries that are party to the NYC.;

As international arbitration increased and the influence and benefits of the NYC became apparent new arbitration institutions began to be created as a supplement to ad hoc arbitrations. Each institution has its own arbitration rules and procedures and offers arbitration services that were initially influenced considerably by its own national environment. Whilst there are a large number of arbitral institutions, the major institutions are:

  1. London Court of International Arbitration (“LCIA”), based in London (established in 1892);
  2. Stockholm Chamber of Commerce (“SCC”), based in Stockholm (established in 1917);
  3. International Chamber of Commerce (“ICC”), based in Paris (established in 1919);
  4. American Arbitration Association, based in New York (established in 1926);
  5. China International Economic and Trade Arbitration Commission (“CIETAC”), based in Beijing (established in 1956);
  6. Hong Kong International Arbitration Centre (“HKIAC”), based in Hong Kong (established in 1985);
  7. Singapore International Arbitration Centre (“SIAC”), based in Singapore (established in 1991).

In the early 1970s there was an increasing need for a neutral set of arbitration rules suitable for use in ad hoc arbitration. Under the auspices of the United Nations, arbitration rules were prepared by the United Nations Commission on International Trade Law (“UNICTRAL”). The UNCITRAL Rules cover all aspects of the arbitral process, providing a model arbitration clause, setting out procedural rules regarding the appointment of arbitrators and establishing rules in relation to the form, effect and interpretation of the award.

The UNICTRAL Rules were intended to be acceptable in both capitalist and socialist countries, in developed and developing countries, and in common law as well as civil law jurisdictions. The UNICTRAL Rules have achieved international recognition and are now widely used. Since 2006, UNCITRAL has engaged its Working Group II in the revision of the Rules which is now in a late stage of completion. The revised Rules are expected to be adopted by UNCITRAL in the summer of 2010.

A further historical landmark came in 1985 with the UNCITRAL Model Law on Arbitration, which is accepted by an increasing number of countries throughout the world; and many other countries (where they have not adopted it outright) have based their arbitration laws upon it. As the authors of Redfern and Hunter on International Arbitration (5th Edition) state at p. 76:

“If the New York Convention propelled international arbitration onto the world stage, the Model Law made it a star, with appearances in States across the world.”

Whilst accepting the significant advance brought by the Model Law, it soon fell behind the pace of the fast-moving world of international arbitration in at least two respects. Firstly, the requirement for an arbitration agreement to be in writing, if it is to be enforceable; and secondly, the provisions of Article 17 governing the power of an arbitral tribunal to order interim measures of relief. This resulted in the Revised Model Law, which was approved by the United Nations in December 2006. The Revised Model Law allows for the “writing requirement” to be defined in very wide terms, and recommends that an arbitral tribunal should have the power to issue interim measures.

In the last 25 or so years there has been an increase in the number of institutions providing arbitration services. In particular, in 1985 the Hong Kong International Arbitration Centre (“HKIAC”) was established; and in 1991 the Singapore International Arbitration Centre (“SIAC”) was established. More recently, in 2008 the ICC set up a branch of its Secretariat in Hong Kong and in Singapore. Also, in 2008, the LCIA established (together with the Dubai International Financial Centre) a centre in Dubai, known as DIFC-LCIA. And, in April 2009, the LCIA set up a satellite branch in India, known as LCIA India.

This brief summary of the history of international commercial arbitration shows that, throughout history, international trade has led to the creation of arbitration machineries and legal frameworks. In looking to the future of arbitration, one similarly has to look at the current and future needs of international business practice to consider what future developments will occur in the field of international commercial arbitration.

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