Given (or perhaps despite) this background, it is not difficult to find enthusiastic proponents of the arbitral process:
In the realm of international commercial transactions, arbitration has become the preferred method of dispute resolution. Arbitration is preferred over judicial methods of dispute resolution because the parties have considerable freedom and flexibility with regard to choice of arbitrators, location of the arbitration, procedural rules for the arbitration, and the substantive law that will govern the relationship and rights of the parties. Equally vigorous are some critics, including those who regard arbitration as “the slower, more expensive alternative,” (Lyons) or who conclude that “arbitration sometimes involves perils that even surpass the ‘perils of the seas.” (Layton)
In fact, the truth is less clear-cut and lies somewhere between these extremes: “The more enthusiastic of those sponsors have thought of arbitration as a universal panacea. We doubt whether it will cure corns or bring general beatitude. Few panaceas work as well as advertised. At bottom, if generalizations must be made, international arbitration is not much different from democracy; it is nowhere close to ideal, but it is generally better than the alternatives. To those who have experienced it, litigation of complex international disputes in national courts is often distinctly unappealing. Despite the frustrating procedural complexities and other uncertainties, arbitration often offers the least ineffective way to finally settle the contentious disputes that inevitably arise when international transactions go away.
An Overview of Leading International Arbitration
Institutions and Rules
I. Institutional Arbitration
International arbitration can be either “institutional” or “ad boc.” A number of organizations, located in different countries, provide institutional arbitration services. The best-known international arbitration institutions are the International Chamber of Commerce (”ICC”), the American Arbitration Association (”AAA”), and the London Court of International Arbitration (”LCIA”). Each of these organizations is described in detail below.
These (and other) arbitral institutions have promulgated sets of procedural rules that apply where parties have agreed to arbitration pursuant to such rules. In addition, each arbitral institution has a staff (with the size varying significantly from one institution to another) and a decision-making body (or “appointing authority”). Among other things, institutional rules set out the basic procedural framework and timetable for the arbitration process. In addition, such rules typically authorize the host arbitral institution to select arbitrators in particular disputes, to resolve challenges to arbitrators, to designate the place of arbitration, and (sometimes) to review the arbitrator’s awards to reduce the risk of un- enforceability on formal grounds. Of course, arbitral institutions charge an administrative fee, which can sometimes be substantial, for rendering these various services; this fee is in addition to compensation paid by the parties to the arbitrators, which is often also set by institutional rules.
It is fundamental that arbitral institutions themselves do not arbitrate the merits of the parties’ dispute. This is the responsibility of the particular individuals selected by the parties or by the institution as arbitrators. Arbitrators virtually never are employees of the arbitral institution, but are qualified private persons selected by the parties or the orbital institution. The arbitral institution confines itself to the task of an “appointing authority,” which chooses the arbitrators if the parties cannot agree.
2. Ad Hoc Arbitration
Ad hoc arbitration is not conducted under the auspices or supervision of an arbitral institution. Instead, private parties simply select an arbitrator or arbitrators, who resolve the dispute without institutional supervision. The parties will sometimes also select a preexisting set of procedural rules designed to govern ad hoc arbitrations. The United Nations Commission on International Trade Law (”UNCITRAL”) has published a commonly used set of such rules. Less frequently, the parties’ arbitration agreement will attempt to set forth the relevant procedural rules or the arbitral panel will independently formulate a special set of procedural rules, tailored to the specific needs of the parties and their dispute. In either ad hoc or institutional arbitration, parties usually will (and certainly should) designate an “appointing authority,” that will select the arbitrators(s) if the parties cannot agree.
Both institutional and ad hoc arbitration have strengths. Institutional arbitration is conducted according to a standing set of procedural rules and supervised, to a greater or lesser extent, by a professional staff. This reduces the risk of procedural breakdowns, particularly at the beginning of the arbitral process, and technical defects in the arbitral award. Similarly, the institution lends its standing to any award that is rendered, which enhances the likelihood of voluntary compliance and judicial enforcement.
On the other hand, ad hob arbitration is typically more flexible and less expensive (since it avoids often substantial institutional fees). Moreover, the growing size and sophistication of the international arbitration bar, and the international legal framework for commercial arbitration, has reduced somewhat the benefits of institutional arbitrations. “Nonetheless, many experienced international practitioners prefer the more structured, predictable character of institutional arbitration, at least in the absence of unusual circumstances arguing for an ad hoc approach.” (Von Mehren)
3. Leading Arbitral Institutions
Different arbitral institutions typically offer somewhat different “products.” The three leading international arbitral institutions are the ICC, the AAA, and the LCIA. Each is briefly described below.
a. International Chamber of Commerce International Court of Arbitration
The ICC’s International Court of Arbitration was historically regarded as the world’s leading international arbitral institution. In recent years, the ICC’s annual intake of new cases has varied between 300 and 350 filings. For example, in 1991 and 1992, respectively, the ICC received 333 and 337 requests for arbitration.
Based in Paris, and founded in 1919, the ICC is a broad-based, non-governmental institution active in international issues affecting businesses. The ICC draws its membership from business organizations and individual companies in more than 100 nations; in approximately 60 nations, “National Committees” have been organized to coordinate membership. Beginning with a European and North American focus, the ICC now includes participants from Asia, the Middle East, Africa, and elsewhere. Among other things, the ICC undertakes studies of particular business and legal issues (generally with the objective of promoting world trade and harmonizing international trade practice) and represents the business community’s view in international organizations and other for a. The ICC has issued significant studies on such topics as the extraterritorial application of national laws, force majeure, letter of credit terms, and the like. The ICC also offers a variety of dispute-resolution facilities, including technical experts, conciliation and mediation, and emergency referees.
Most important for present purposes, the ICC also offers-under the auspices of its International Court of Arbitration-supervised and binding dispute resolution through arbitration. The International Court of Arbitration was established in 1923. It presently consists of some 60 members, from nearly as many countries. It meets in plenary session once each month, with smaller administrative committee meetings three times each months. The Court is assisted in these functions by a Secretariat, with its own 32-person legal and administrative staff, including a Secretary General, a General Counsel, and a number of staff attorneys.
“The International Court of Arbitration has promulgated the ICC Rules of Conciliation and Arbitration, most recently revised in 1975 and in 1988.” (Cohn, The current ICC Rules are reproduced at Appendix J.) The Rules govern the conduct of arbitrations under the control of individual arbitral tribunals.
The ICC’s International Court of Arbitration is not in fact a “court,” and it does not itself decide disputes or act as an arbitrator. Rather, the Court is an administrative committee that acts in a supervisory and appointing capacity under the ICC Rules. The ICC International Court of arbitration’s four most significant functions under the Rules are (a) to appoint arbitrators when the parties are not able to agree on the identity of an arbitrator; (b) to resolve challenges to an arbitrator’s independence or other qualifications; (c) to-replace arbitrators who are “prevented” from fulfilling their functions or who do not comply with the ICC Rules; (d) to review draft “terms of reference” (described at infra pp. 80-81) and arbitral awards, prepared by individual ICC arbitral tribunals, for defects and inconsistencies; (e) to fix the arbitrators’ remuneration; and (f) to decide challenges to the “prima facie” jurisdiction of an arbitral tribunal.
Under the ICC Rules, the International Court of Arbitration exercises a more detailed supervisory function over ongoing arbitrations than other leading arbitral institutions. In particular, the ICC’s scrutiny of terms of reference and arbitral awards is unique, as compared to the degree of supervision exercised by most other arbitral institutions, which has been both praised and criticized. On the other hand, as compared to the UNCITRAL, AAA International, and LCIA Rules, the procedural provisions of the ICC Rules are comparatively general and abstract, omitting many of the specific provisions contained in leading alternatives.
Each ICC arbitration is assigned to a particular ICC staff lawyer. Together, with an administrative assistance, the staff attorney handles in the first instance the supervisory and ministerial aspects of the Court of Arbitration’s duties. Among other things, the attorney assigned to a case is responsible for ensuring that notice of the arbitration is received by the respondent, seeing to it that the parties pay their administrative costs, and providing preliminary comments and recommendations to the Court concerning issues such as prima facie jurisdiction, draft awards, or challenges to arbitrators.
In appointing arbitrators, the Court typically will request the views of the relevant National Committees of the ICC, although Article 2 (6) permits selection of arbitrators from countries without a national chairman if no party objects. National Committees often maintain lists of potential arbitrators, from which proposals will be made. Except where a proposed candidate is unqualified or partial, the Court will typically adopt the National Committee’s proposal.
While enjoying a first-class reputation, the ICC has sometimes been criticized for selecting arbitrators from a narrow circle of candidates and for having stagnated somewhat in recent years. The ICC is also widely-regarded as charging unusually high administrative fees, in order to support its centralized staff. The ICC’s fees are generally based primarily upon the amount in dispute and the number of arbitrators; the currently applicable table of fees is excerpted in Appendix J. Moreover, the ICC demands substantial advance payments of fees, which are held interest-free until disbursement. “Particularly in smaller disputes, the ICC’s fees can be uneconomic.” (Wetter)
b. American Arbitration Association
The American Arbitration Association, based in New York, was founded in 1926. In terms of caseload and amounts in dispute, the AAA describes itself as the world’s largest arbitral institution. It administers more than 60,000 arbitrations or other forms of alternative dispute resolution each year, with specialized rules for numerous different industries. Outside the United States, however, the AAA is often seen as a national institution, and it has encountered difficulties appealing to non U.S. companies and counsel. In 1991 and 1992, the AAA had “international” caseloads of 262 and 204 new filings respectively.
In recent years the AAA has sought to broaden its appeal, particularly among non-Americans. Among other things, in 1991, the AAA promulgated a new set of rules designed specifically for international arbitrations (reproduced in Appendix I). The AAA International Arbitration Rules were based on extensive consultations with practicing lawyers and others. The rules were based principally on the UNCITRAL Rules, and were intended to permit a maximum of flexibility and a minimum of administrative supervision.
The AAA appoints a case administrators for each arbitration, who can play an important role in early stages of an arbitration; in international cases, the AAA endeavors to appoint administrators with prior international experience. In contrast to the ICC, however, the AAA has a less substantial administrative/legal staff and it plays a much less significant on-going supervisory role in the conduct of arbitrations. In particular, there is no decision as to prima facie jurisdiction by the AAA and no review of terms of reference, draft awards, or other decisions by arbitrators.
Parties are free to mutually agree upon arbitrators, or methods of selecting arbitrators, in AAA arbitrations. If the parties cannot agree, the AAA will act as appointing authority. After consultation with the parties, the AAA will select an arbitrator, typically from existing lists of prospective arbitrators maintained by the AAA. Particularly in international cases, every effort is made to identify an arbitrator with appropriate experience.
The AAA also recently revised its fee schedule. Under the revision, a small advance payment (”filing fee”) to the AAA is required. Subsequent payments are based on the number of days of hearings (currently $150-200 per hearing day), plus processing fees payable periodically (currently $150-200 for each 90 days). The fees for the arbitrators are left to agreement between the parties and tribunal. They are generally based on hourly or daily rates, rather than on the ICC’s percentage of the amount in dispute.
c. London Court of International Arbitration
The London Court of International Arbitrations is, by a fairly substantial margin, the second most popular European arbitration institution. Founded in 1892, and conscious of its claim to be the world’s oldest existing arbitral institution, the LCIA historically had a distinctly English focus. In recent years, that has changed somewhat, in part through a conscious effort commenced in 1985 to broaden its caseload and clientele. In 1993, the LCIA selected its first non-English president-Dr. Karl-Heinz B?ckstiegel-and it now limits the number of English members of its Arbitration Court.
Although the LCIA is formally independent, it is sponsored by the London-based Chartered Institute of Arbitrators, the Chamber of Commerce and Industry, and the Corporation of the City of London. The Chartered Institute provides training programs for arbitrators and maintains more than 30 panels of arbitrators with particular specialties. More than 6,000 individuals are listed as qualified arbitrators by the Chartered Institute of Arbitrators. LCIA arbitrators are frequently drawn from these lists. Historically, in international commercial arbitrations, senior English lawyers (and particularly Queen’s Counsel and other barristers) constituted the majority of LCIA appointments. In recent years, however, the LCIA’s effort to internationalize its focus has been reflected in more diverse appointments.
Like the ICC and AAA, the LCIA does not itself function as an arbitral tribunal, but instead administers a set of arbitration rules (reproduced in Appendix K) and appoints arbitrators. As with the AAA, the LCIA does not maintain a legal and administrative staff comparable to that of the ICC. Rather, the President is more closely involved in selecting arbitrators, who are then not subjected to the same sort of step-by-step oversight that occurs under the ICC rules. Likewise, there is no LCIA review of draft awards or terms of reference.
The LCIA’s caseload is substantially smaller than that of either the ICC or the AAA and it has more limited resources for promoting its services than either of those competitors. In 1992, it had a new case intake of approximately 60 cases. The LCIA’s approach to administrative fees is similar to that of the AAA, with periodic payments during the course of the arbitration, based on tasks actually performed, rather than the ICC’s requirement of substantial advance payments based largely upon the amount in dispute.