Where does international commercial arbitration come from?

If we want to fully understand the current role of international commercial arbitration, and what form it is likely to take in the future, it is important to look at the past developments that underlie our current arbitration system. In short, to understand the future it is necessary to understand the past.

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

The first law dedicated to arbitration in England dates from 1697. In France, the French Revolution considered arbitration as a natural law 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 old courts of Pie Poudre (from the French pied poudre, meaning vagabond), established by municipalities to settle disputes between merchants on market days. The origins of arbitration go back to dispute settlement practices in antiquity, in Europe, in Greece and Rome, including Roman law, and in Asia.

Until the 20th century, national courts lagged behind in recognizing arbitrator decisions. This may be because the courts viewed arbitration as a rival, as well as being suspicious of the standards that applied in arbitrations at the time. Even in England, long a center of international commercial arbitration due to its central position as a hub of transport, insurance, commodity and financing businesses, arbitration was initially closely controlled by English courts.

In 1883, the Court of Common Council of the City of London set up a committee to consider the establishment of a court for the arbitration of transnational commercial disputes arising within the purview of the City. The initiative came from the London business community, which was increasingly dissatisfied with the slow and costly process of litigating in the English courts. As The Law Quarterly Review would report at the court’s inauguration a few years later:

“This Chamber must have all the virtues that the law lacks. It must be expeditious where the law is slow, cheap where the law is expensive, simple where the law is technical, a peacemaker instead of an agitator of conflict.”

In 1919, the world business community established the International Chamber of Commerce (“ICC”). The ICC has been the voice of the international business community and has been a major driving force in promoting 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 trade agreements was seen as essential.

In 1958 the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC”) was adopted. The City of New York provides for the 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 great advance for international arbitration. Lord Mustill described New York City as a convention which: “could perhaps claim to be the most effective body of international law in the whole history of commercial law.” The success of NYC is illustrated by 3 factors:

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

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

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

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

The UNCITRAL Rules were intended to be acceptable in both capitalist and socialist countries, in developed and developing countries, and in common law and civil law jurisdictions. The UNCITRAL 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 finalization. The revised Rules are expected to be adopted by UNCITRAL in the summer of 2010.

Another historical milestone 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 fully adopted it) have based their arbitration laws on it. As the authors of Redfern and Hunter on International Arbitration (Fifth Edition) state on 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 around the world.”

While it accepted 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. In the first place, the requirement that an arbitration agreement be in writing, in order for it to be enforceable; and second, the provisions of article 17 that govern the power of an arbitral tribunal to order provisional measures of reparation. This resulted in the Revised Model Law, which was approved by the United Nations in December 2006. The Revised Model Law allows the “requirement in writing” to be defined very broadly and recommends that an arbitral tribunal have the power to order provisional measures.

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

This brief overview of the history of international commercial arbitration shows that, throughout history, international trade has led to the creation of arbitration mechanisms and legal frameworks. When looking towards the future of arbitration, one also has to look at the current and future needs of international commercial practice in order to consider what future developments will occur in the field of international commercial arbitration.

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