International Commercial Arbitration

A contract is a legally binding agreement between two parties. (Law and Owe, 1999). An agreement arises as a result of an offer and acceptance. For a contract to be legally binding, there must be a consideration, which is a promise by one party to the contract that constitutes the price for buying a promise from the other party to the contract. (Law and Owe, 1999). Other important considerations for a contract as stated by Law and Owe (1999) include: The parties must have an intention to create legal restrictions;

The parties must have the capacity to contract (that is, they must be competent to enter a legal obligation, by not being a minor, mentally disordered, or drunk); The agreement must comply with any formal legal requirements; The agreement must be legal; The agreement must not be rendered void by some common-law or statutory rule or by some inherent defect. Generally, there is no particular formality that is required for the creation of a valid contract. (Law and Owe, 1999.

It may be partly oral as well as partly written, or even implied (Law and Owe, 1999). However, certain contracts are valid only if made by deed (for example, transfers of shares in statutory companies, transfers of shares in British ships, legal mortgages, certain types of lease) or in writing (for example, hire purchase agreements, bills of exchange, promissory notes, contracts for the sale of land made after 21st September 1989) can only be enforced if evidenced by writing. (Law and Owe, 1999).

According to Salacuse (ND), international business contracts today provide that any disputes that may arise in the future between parties are to be resolved by international commercial arbitration. This option is chosen by the parties for a variety of reasons which include te avoidance of vagaries of National Courts, the security of a neutral and expert forum for their disputes, the conduction of a dispute resolution in private, and to have legal assurance that arbitral awards will be enforceable.

(Salacuse, ND). Salacuse asserts that international arbitration is of two types: ad hoc, which is basically administered by the parties according to an agreed upon set of rules, or institutional, which is administered by an established institution such as the International Chamber of Commerce, the London Court of Arbitration, the American Arbitration Association, the Stockholm Chamber of Commerce, or the International Centre for Settlement of Investment Disputes, an affiliate of the World Bank.

The parties to the agreements are free to structure the arbitral process according to their wish. (Salacuse, ND). Under normal circumstances, most parties opt for a three-person arbitral panel consisting of an arbitrator appointed by each of the disputants, and the third, the panel’s chairman, selected by the two arbitrators. By virtue of the Convention on the Recognition and Enforcement of Arbitral Awards, now signed by over a hundred countries, both arbitration agreements and arbitral awards are enforceable throughout the world.

(Salacuse, ND) quoting from Streng and Salacuse (1986). International Commercial Arbitration is a legalistic, adversarial process whose purpose is to decide on the respective rights and obligations of the parties to the dispute, not to help them change their attitudes and behaviours to resolve their conflict. (Salacuse, ND). It is a private litigation and in the event where the arbitrators fail to comply with applicable law in the course of the arbitration process, this will amount to an invalidation of such and award by the Courts. (Salacuse, ND).

This implies that virtually all international business disputes are expeted to lead to a binding arbitration if the parties alone or with the help of a third party, are unable to resolve the conflict themselves. (Salacuse, ND). The way parties deal with dispute and the strategy of any mediator is influenced by the fact that the dispute is expected to lead to a binding agreement. (Salacuse, ND). International business disputes are therefore different from other political disputes between states where no such adjudicative process is waiting in the wings to impose a binding decision. (Salacuse, ND).

Parties to international business disputes that cannot be settled by conciliation are therefore motivated to commence arbitration. International Business dispute arbitration like litigation in the courts is a painful and expensive exercise and may expand through a number of years to conclude. (Salacuse, ND). In addition, it may destroy the business relationship of the parties. (Salacuse, ND). For example, in an arbitration between Egypt and foreign investors, the case took five years in the first phase and a cost of $1. 5million was incurred. (Salacuse, ND) quoting from (International Chamber of Commerce Court of Arbitration, 1983).

However, the dispute was never resolved. The parties finally settled the matter through negotiation fourteen years after the dispute began. (Salacuse, ND). From the foregoing, because of the costly and lengthy procedures involved in international arbitration as well a the potentially destructive nature, most parties now turn to negotiate a settlement of their dispute. (salacuse, ND). For example, almost two-third of all arbitration cases filed with the International Chamber of Commerce Court of Arbitration are settled by negotiation before an arbitral award is granted. (Salacuse, ND). Quoting from Schawrtz (1995, p. 99).