by Legal Researcher Dr. Othman Salman Gillan Aboudi
Arbitration is credited for being the most effective method to resolve disputes arising from international trade and investment contracts. Several unique characteristics have attracted a number of international legal systems to arbitration, namely, merit justice, agreeability to concerned parties, rapidity in decision making, economical practicality, and avoidance of lengthy red tape procedures associated with resolving disputes by standard methods. These exclusive qualities have reassured investors and have dispelled lingering fears and assumed risks caused by presumed host country sovereignty misuse, including the possibility that the national authority of a host country may take autocratic measures negatively affecting any desired financial gain, capital, or contract established between a foreign investor and the host country.
International Commercial Arbitration has gained enormous credibility since the late nineteenth, and twentieth century via agreements and protocols correlated to regulation of international commercial arbitration. These include the 1889, and 1940 amendment, of the Uruguay Convention stipulating procedural regulation of international commercial arbitration, the 1923 Geneva Protocol requiring arbitration during the era of the League of Nations, the 1927 Geneva Convention specifying the implementation of foreign arbitral proceedings, the 1958 New York agreement (replacing the 1927 Geneva Convention) providing for the recognition and implementation of foreign arbitral proceedings, the 1961 European Convention on Arbitration, and several other bilateral agreements have been ratified to achieve a standard system for international commercial arbitration.
This research sheds light on the concept, value, uniqueness, and assessment of the feasibility of including international commercial arbitration in Iraqi law.
Research reveals that despite its significance to the legal systems of most countries and in the face of its acceptance in almost universally-ratified international conventions and legal framework agreements, international commercial arbitration remains rendered inoperative under the current Iraqi legal system. This is because arbitration clauses stipulated in the Iraqi context have been too inharmoniously versed to be compatible with the Iraqi legal system. Arbitration provisions have been written only incompletely and inaccurately. Furthermore, arbitration provisions were inserted only to pacify pretext conditions imposed by foreign investment companies on the one hand, and to satisfy technical requirements on the other. In both situations, their inclusion failed to account for the fact that Iraq has not explicitly recognized the validity of international commercial arbitration. Iraq’s position is similar to that of most other countries that do not accept the New York Convention of 1958 (on the recognition and enforcement of arbitration awards) out of concern over perceived future infringement of national sovereignty.
Organization of this Research Paper
To address international commercial arbitration, this research paper is divided into three segments. The first focuses on definition; the second, legal characteristics; and the third, due process. The last portion of this research paper contains recommendations offered to Iraqi legislatures promoting international commercial arbitration.
Jurisprudential scholars have not agreed on a definition for the term arbitration; various scholars define the term from various view points. To come up with their particular definition, scholars have relied on the disputants, the character or responsibility of arbitrators, and the arbitration systems. While defining arbitration, most scholars have focused on the terms “agreement” and “arbitrator,” without distinguishing the term “arbitration” from regular legal systems and without providing guidance for the “arbitral referee.”
First: The Meaning of the Word “Arbitration”
1. In Arabic, the word arbitration is derived from the word, “ruling,” indicating producing a judgment. It is used in the perspective: to “rule for” or “sentence” someone, noting of course that the word “Ruler” is one of 99 names for God. In this sense, arbitration is derived to delegate power to an arbitrator. Although the, Quran says: “Would I ever seek a Judge other than Allah?” The Quran also says: “By your Lord, they should not be considered believer until they appeal to you to resolve all their disputes,” and the Quran also adds "If you fear a married couple might break up, designate a mediator from his family and another from hers." Moreover, rivals appeal to the ruler by raising their contention to him, and this ruler or referee is the one who is chosen to decide the conflict among disagreeing parties. Another derivative implies a form of control by denying or refusing a person.
2. In French, the word arbitration is derived from the word, “Arbitrage” meaning to carry out a ruling (“Arbitrer” is a Latin word derived from “Arbitrare”). The word indicates intervening, ruling, and deciding how to settle a dispute. In addition, arbitration decisions are issued by a sole person or by a few, depending upon the request by the disagreeing parties.
Second: The Meaning of the Word “Arbitration” as a Terminology
Jurisprudence defines arbitration as referring to a contractual system whereby the disagreeing parties consent to have arbitrators resolve their disputes away from standard judicial procedures." Arbitration is also defined as (1) a chosen judiciary, (2) appeal by the concerned parties to one or several individual(s) to decide their disputes, and (3) a special judiciary system to settle disputes by selected individuals. In other words, arbitration aims to achieve justice and resolve disputes by authorizing arbitrators. Thus, arbitration is about settling disputes by a person chosen by consensus of concerned parties. The agreement itself is referred to as the arbitration agreement. Arbitration is a mixed system that begins by an agreement, motions by an arbitration procedure, and ends by a judgment. Arbitration is also defined as an agreement between two or more parties to take one or several disputes outside the jurisdiction of ordinary courts to entrust a committee consisting of one or more persons to the task of making binding decisions. Arbitration is a system whereby disputes are decided by a person or committee selected by disputants who shall commit to implementing concerned resolutions.
Third: Definitions of “International Commercial Arbitration”
1. Definition according to international conventions: Most international conventions do not include provisions regarding a specific definition for “international commercial arbitration” however, we find a definition in the New York Convention of 1958, which stipulates that the term arbitration is not limited to just arbitration provisions for verdicts for each concerned case, but includes verdicts issued by the Permanent Court of Arbitration and by arbitral bodies employed by the parties. This definition is considered by some as neither exhaustive nor exclusive because it is pertinent only to the aforementioned Convention, wherein the focus is mostly on acceptance and enforcement of decisions.
2. Definition according to national legislation: Most national legislation has also failed to precisely define international commercial arbitration; however, some did, including, Article (1492) of the French Code of Civil Procedures, which considers certain objective criteria but not party nationality, arbitrator nationality, location of contract establishment or signing, or arbitration location. Instead, the French Code considers only the financial criteria to disputes arising among international commercial disputants. Focusing on objective criteria enabled the French judiciary to prepare objective bases for arbitration.
3. Definition according to jurisprudence: Legal scholars have defined international arbitration as a way to resolve a dispute between two or more subjects of international law through the ruling of an arbitrator, or arbitrators, selected by the contending States. Another definition in this setting refers to international arbitration as being an agreement to refer an international trade dispute to entities other than standard courts to make decisions binding to disputants. The necessary consent to engage in arbitration is referred to in the articles of arbitration, participation, or contract.
The Significance of International Commercial Arbitration
International commercial arbitration offers many advantages to contracting parties. By contrast, it also harbors some disadvantages. The significance of arbitration will be demonstrated by the following comparison between its advantages and disadvantages.
First: The Advantages of International Commercial Arbitration
The significance of international arbitration is demonstrated by the benefits gained by parties who bring their disputes to be resolved as follows:
1. Expediting conflict resolution: by focusing on deciding only a particular dispute, arbitrators are able to start and end arbitration proceedings in a much shorter timeframe than their counterparts in standard courts. Also, as authorized, and at their discretion, arbitrators determine the time period necessary for a party under arbitration to end conflict and commit to resolution.
2. Impartiality and acceptance of the arbitrating entity: this is true because arbitration is based on the premise that arbitrators will be elected in good faith and conviction by the disputants themselves, there will be greater support for the final decision. Allowing litigants the opportunity to carefully choose arbitrators who are experts in the subject of the dispute contributes to the rapid and accurate understanding of the matter of controversy; especially in highly technical issues requiring expertise not available to a judge of general jurisdiction. Factors like time, skill set, area of specialization and privilege – not available to judges in standard courts – allow a specialized arbitrator to decide a dispute faster than judges.
3. Arbitration provides reassurance to investors: Usually, the investor will not have knowledge of the laws of a host country and thus may lack confidence in its judicial system. Consequently, without the reassurance gained from international arbitration, foreign investment will suffer due to skepticism over host country judiciary influence and local political biases.
4. Confidentiality and secrecy: Arbitration better provides for the protection of confidential information contained within contracts.
5. Determining rules to settle disputes: Arbitration solves the issue of reoccurring legal inconsistencies that are present when each party attempts to interpret the contractual terms in light of provisions of his local country laws. Categorically, arbitration eliminates discrepancies and/or conflict of interest inherent in cross-border contract interpretation.
Second: Disadvantages of International Commercial Arbitration
Jurisprudential scholars have determined an array of disadvantages to international commercial arbitration. These are presented in the following paragraphs:
1. Arbitration decisions are lacking binding power: International commercial arbitration is used to resolve contract disputes based on the willingness and agreement of all parties. However, it is optional for a party to resort to arbitration and optional whether or not to include arbitration provisions in the agreed contract. Arbitration must continue despite the lack of consent or presence of the other party. This is not a disadvantage to international commercial arbitration because most international conventions on international commercial arbitration stipulate continuing arbitration despite opposition by one of the parties to the decision. International arbitration institutions will exert pressure on the party resisting implementation. There are also other measures that the international community and trade workers can take to pressure the reluctant party to implement the arbitration decision, such as revealing identity, shaming, or adding the non-implementing party’s name to a special list, among other practices.
2. Arbitration infringes on national sovereignty of States: International commercial arbitration interferes with national sovereignty, particularly in contracts to which the State, or one of its public institutions, is a party, in which case the State must waive its competent national jurisdiction in resolving disputes for all contracts. Concerns over interference in national sovereignty have led many States to refrain from using/consenting to arbitration.
3. Difficulty in proving faults made by arbitrators: When an arbitrator errs in determining and/or applying the general principles of an applicable law, it is sometimes difficult to detect or trace the error, and difficult to correct or challenge it. This is especially true where the arbitration tribunal is a temporary one, dissolving automatically with the issuance of a decision.
International Commercial Arbitration in the Iraqi legal system
Many Iraqi laws regard arbitration as an important method for resolving trade and investment disputes. For an example: Code of Civil Procedures No. 83 of 1969, amended, and the Foreign Investment Law No. 13 of 2006, and the Terms of Reference approved by the Law of Specialized Commercial and Industrial Chambers.
International commercial arbitration was defined by the Iraqi legal system in 1928 in law No. 34 of 1928, containing the ratification of the protocol on the terms of the arbitration, signed in Geneva on September 24, 1923, known as (the protocol on arbitration clauses.) The protocol called for the validity of agreements concluded among contracting States through resolving trade differences by arbitration, adhering to the will of parties and the laws of the State where arbitration is conducted, and committing each contracting State to the implementation of arbitral decisions in their territories, by their staff, and under their national laws.
However, this makes arbitration decisions issued by competent arbitration intuitions and bodies subject to approval by the competent court, according to provisions of the Code of Civil Procedures, and provided that arbitration is entered into at the request of a party. The competent court then applies relevant provisions listed in articles (251-276) of the aforementioned law; such process gives the competent court access to review the original arbitration decision and the circumstances and conditions, based on Iraqi law.
This necessarily means striping the arbitration decision of its binding force. For an example, if two international parties agree to sign a contract (to provide electrical equipment) agreeing to solve disputes by arbitration based on provisions of the International Chamber of Commerce (ICC), and one party breaches the provisions and the other wins a judgment against the violating party from the Paris Chamber of Commerce, then the judgment will not be implemented in Iraq unless and until a proceeding in Iraqi courts is initiated to obtain judgment to implement the arbitration decision. Thus the application of provisions contained in the Code of Civil Procedure gives the Iraqi judiciary broad authority to formally and substantively alter arbitration decisions, which weakens the benefit of arbitration. Given this power of inevitable review, the parties to a contract would perhaps be better off to just resort to the Iraqi judiciary from the beginning to resolve their dispute. It cannot be said here that an arbitration decision can be implemented based on the law of Enforcement of Foreign Judgments No. 30 of 1928, as the Act applies to judicial rulings while specifying conditions under which implementation may be conducted inside Iraq. Furthermore, silence by the Iraqi judiciary concerning the general principles enshrined in the Geneva Protocol of 1923 cannot be interpreted as acceptance because arbitration text and decisions will not be implemented, but will instead fall on deaf ears.
The implementation of foreign arbitral decisions, however, was addressed by the New York Convention (on the recognition and enforcement of foreign arbitral decisions). Iraq, like most Arab countries, has not yet endorsed the New York Convention, perhaps, due to an overall negative position towards international arbitration stemming from large losses incurred from international arbitration decisions in previous disputes, and coupled with poorly formatted contracts containing inaccurate arbitration terms and implementation restrictions. In general Iraq suffers from a lack of specific contractual execution expertise and instead has typically focused on cost and specifications of contract material, because it is a simpler process.
This prompted the Iraqi legislature to prohibit arbitrations and decisions issued by international tribunals. For an example, the disbanded Revolution Command Council Decree No. 124 of 1990 stipulated the protection of Iraqi money, rights, and interests inside and outside Iraq despite the existence of arbitration clauses pertaining to several government contracts -- which were only inserted in response to calls by contracting companies to provide guarantees to capital assets to foreign investing companies.
The Legal Nature of International Commercial Arbitration
The issue of determining the legal nature of arbitration, in general, and international commercial arbitration, in particular, is considered one of the most important issues addressed by comparative legal scholars. To do so, one must factor the important impact of legal conditioning on determining applicable rules and procedures, especially when facing issues during dispute resolution.
The Legal Characteristics of International Commercial Arbitration
Several arbitration characteristics inherent in different types of disputes, agreements, arbitration authorities are presented below:
First: General Commercial Character of Arbitration
International commercial arbitration takes place by delegating commercial disputes to bodies chosen by disputants seeking a final resolution. In other words, international commercial arbitration is usually optional for natural or juridical disputants from different States. Although arbitration is supposed to be optional, in some cases, arbitration is mandatory – as in the case of arbitration by the International Chamber of Commerce regarding standard contracts of industrial facilities and supply.
Second: Specialized Character of Arbitration
Specialization can be achieved by certain international institutions to settle certain international disputes but still preventing, for example, commercial arbitration from solving labor disputes.
Third: Absolute Character of Arbitration
The basic principle behind international commercial arbitration is to decide and resolve a dispute. Without precluding the arbitration agreement from reconciliation and provided the agreement is significantly explicit and clear in indicating the will to reconcile, the arbitrator may arbitrate or reconcile a dispute and even if the arbitrator does not comply with provisions of a particular law, his ruling will be subject to appeal only if it violates public order or morals. Noting of course that the arbitrator is expected to provide justification for his ruling for both typesmentioned above.
Fourth: Institutional Character of Arbitration
Institutionalized arbitration is defined as being a type of arbitration concluded by a specialized institution that has its own arbitration rules, or follows certain pre-determined rules of arbitration. In this case, arbitration is performed based on those rules—adopted by the institution—which determine the criteria for the selection of arbitrators. Often the institution prepares a list containing the names of persons who have professional experience and knowledge of transactions and laws. Disputing parties may then choose from the list, or from outside the list of that institution at their discretion. This is unlike ad-hoc arbitration, where the parties choose their own arbitrators without resorting to a private arbitration institution or committing to its procedures and arbitrators.
Fifth: Permanency Character of Arbitration
By design, the decision to resort to international commercial arbitration is temporary and will expire after a particular duration of time. Consent by the parties to arbitrate is good only during this specified period. This period may begin from the date of contract or the date of dispute emergence. This period should be specified in the arbitration agreement. However, permanent arbitration is also an option, and is not limited to a specific length of time; instead it will be effective at any time in the future, if the dispute arises regarding a particular topic agreed for arbitration.
Sixth: Optional Character of Arbitration
Voluntary commercial arbitration (as agreed upon as a friendly way to settle disputes) is concluded by presenting the dispute to arbitrators chosen by the disputing parties. It is not mandatory arbitration, and it is worth noting that mandatory arbitration is an exception to begin with, because the basis for arbitration is free choice.
Seventh: Inclusive Character of Arbitration
From an efficiency perspective, arbitration should be all-inclusive and the parties should agree to resolve all the items involved in the contract concluded between them; whether they are legal items, technical, financial, or others. However, arbitration could be partial when the parties agree to confine it to some contract items and not all of them, such that it includes legal, technical, or financial, among others.
Eighth: International Character of Arbitration
The most important thing that distinguishes international arbitration is its international character, and yet the possibility of conferring certain nationality on arbitration is not easy. It is not characterized as national, foreign, or international, but more properly, it is neutral arbitration. The reason is because arbitration is like a contract based on the will of the parties, therefore we find that the jurisprudence and the judiciary in this area make a distinction among three types of arbitration, they are:
1. National arbitration (Internal): It is defined as arbitration where the entire process is linked to a certain state.
2. Foreign arbitration: It is generally defined as arbitration where one or more element is linked to external or foreign factors.
3. International arbitration: It is defined as arbitration which has many points of convergence with other national legal systems, or has no link with other national legal systems whatsoever.
The consequences of distinguishing between national arbitration and other types will affect a range of issues, such as identifying which law to apply to the arbitration agreement. Jurisprudence and legal scholarship present criteria to distinguish between national and international arbitration, most of which falls under one of the following factors:
1. Geographical factor: It is based on the location or the “situs” of arbitration. This factor considers arbitration as being national arbitration if the decision was made inside the country, otherwise (if decided abroad) it considers arbitration as international. The drawbacks to this method are: (1) the location where decision is issued may be irrelevant to the proceedings, and (2) the factor itself is imprecise – leading dispute parties to agree to take their dispute to a location other than the designated location, so as to be considered before an international arbitration relative to the state where judgment was rendered, and to benefit from the application of foreign law. In addition, the location of arbitration indicates whether arbitration itself is national or international, but alone, is not sufficient to determine the status.
2. Legal factor: It is the proscribed law that determines the character of the arbitration proceedings. If the applied law is internal, then arbitration is considered national; but if the applied law is foreign, then arbitration is considered international, and so would be if the arbitration was subject to procedures stipulated in international agreement. But this method has also been subject to several criticisms, including the possibility of conducting the arbitration proceedings in several countries. In that case, there can be multiple laws that will govern its procedures as a result of the movement of the arbitrators among several states.
3. Economic factor: It is the dispute nature that determines the character of the arbitration proceedings. Because jurisprudence depends on the nature of the dispute, if the nature of the dispute is related to international commercial activity, then arbitration is considered international. However, it is noticeable that this standard does not specify the situations where the transactions might be considered international or not; it is obvious that this matter is significantly difficult.
4. Nationality and residency factors: This factor considers arbitration as international, if the nationalities or residencies of disputants or nationalities of arbitrator were different. Similarly, arbitration is considered as national if the nationalities or residencies of disputants and the nationalities of the arbitrator(s) are identical. There is a quasi consensus among jurists to disregard this factor because it leads to unacceptable results mainly because nationality and residency are not sufficient to give arbitration an international character.
Also the Model Law on international commercial arbitration, established by the United Nations Commission on International Trade Law (UNCITRAL), specified situations where arbitration is to be considered international in the third paragraph of Article (1):
“The arbitration shall be considered international in the following cases:
A. If the place of work of the parties to the arbitration agreement, at the time of agreement, happen to be in two different countries.
B. If one of the following locations is outside the state where one of the parties work, which is:
1. The place of arbitration if it is determined in the arbitration agreement or according to it.
2. Any place where an important part of the obligations arises from the business relationship, or where the subject matter of the dispute is most closely connected.
3. If the parties have expressly agreed that the subject of the arbitration agreement relates to more than one state.”
Some argue -and we agree with them- that the Model Law was not successful in delineating the standard for international for arbitration, because it allowed a party to circumvent the national law (that might be originally competent) by fabricating one of the aforementioned factors.
Distinguishing Arbitration from Other Legal Systems
Commercial arbitration is considered the ideal method for resolving disputes related to international commercial contracts. However, there is some overlap between arbitration and standard legal systems. As we acknowledge they are both important means of resolving disputes related to international commercial contracts, the following paragraphs are presented to clarify the differences and similarities:
First: Arbitration and Expert Advice
1. The similarity between arbitration and expert advice is that both rely on third parties to obtain an opinion on the dispute.
2. The differences between arbitration and expert advice are as follows:
A. An arbitrator acts as judge. He issues a final verdict binding to all parties, and was selected by agreement of all involved parties to settle the dispute.
B. An arbitrator is restricted by procedures and deadlines stipulated in the arbitration rules. The task of the expert is limited to expressing an opinion (on matters submitted to him) not binding on the parties. When writing his report, the expert adheres only to the procedures and deadlines, pertinent to his experience and contained in the law of Evidence.
C. An arbitrator does not have to take an oath because of the confidence that led to his selection; however, the expert must take oath before opining on the dispute as required by the law of Experts and the law of Evidence.
Second: Arbitration and Reconciliation
1. Arbitration and reconciliation are similar in the following aspects:
A. There may not be arbitration except in matters that can also be reconciled. Also, the parties to both contracts agree to resolve their disputes by mutual consent.
B. They must both be proven in writing and can remain confidential.
2. Arbitration and reconciliation are different in the following aspects:
A. Reconciliation is achieved by the parties themselves, or their representatives, based on whether each party provides the other repudiation on some of their claims against each other. Arbitration, however, is conducted by an arbitrator who acts as a judge and decides to resolve the dispute between the parties in the manner he deems to be fair.
B. The arbitration system is also riskier than reconciliation. In reconciliation, the party has control over whether they agree to the final verdict, whereas in arbitration, the party must accept the arbitrator’s decision before they know the what the verdict will be. Furthermore, a truce contract in itself is not enforceable unless it was in the form of a formal contract, or is before a court; however, the award is enforceable as soon as it is executed by the competent court.
The International Chamber of Commerce encourages recourse to reconciliation and the development of a system of its own which preference is given to reconciliation in contrast to arbitration, and as such should be sought before arbitration. However, reconciliation is optional unless otherwise stated in the contract as necessary. The reconciliation system allows resorting to reconciliation without it being followed by any obligation to resort to arbitration upon the failure of reconciliation.
Third: Arbitration and Representation
1. Similarity between arbitration and representation: is that both contracts delegate other people in their place to carry out permissible known acts.
2. Differences between arbitration and representation: described in the following aspects:
A. The arbitrator is chosen and agreed upon by the parties to settle the dispute; however, a representative is to represent one party only.
B. The arbitrator shall be completely independent from opponents: he shall not be permitted to step down after accepting without a valid excuse. The arbitrator shall acquire the status of a judge simply by agreement of the parties, the parties may not intervene in the task entrusted to him, and can only be rejected or terminated if agreed upon, and only for the same reasons a judge is rejected or terminated. The decisions of the arbitrator shall be binding on the parties; however, the representative derives his authority from the client. The representative may resign at any time; provided that this is not the intent to harm the party represented, and the party may retire the representative at any time provided no abuse in that decision. Acts outside the scope of contract do not apply to the party (Client) in that if the representative acts outside the scope of the contract it shall be deemed illegal and does not apply to the party (client), unless it was acceptable by the latter.
Fourth: Arbitration and Conciliation
1. Similarity of Arbitration and Conciliation: Conciliation is a procedure that aims to resolve differences through facilitating an amicable solution before it reaches the level of a legal dispute. Arbitration is similar to conciliation in that they both require the intervention of other persons to resolve the dispute between the parties; in both systems the parties agree to resolve disputes by mutual agreement through the delegation of other people to this task.
2. Differences of arbitration and conciliation: described in the following aspects:
A. Conciliation aims to reach a specific agreement between the parties through voluntary cooperation among them. While, arbitration aims at resolving disputes between the parties through arbitrators selected with the agreement of the parties.
B. The task of the Conciliation Committee is limited to solutions and suggestions, and is not binding. The mandate of an arbitrator is like that of a judge and his decision is binding as in a court.
C. The conciliation procedure is simpler than arbitration as the conciliation committee does not commit to the application of a particular system of law.
Fifth: Arbitration and Mediation
1. Similarity of arbitration and mediation: mediation is intervention by a third-party not related to the conflict between the parties, in order to settle the matter amicably. The third party shall be directly involved in the negotiations between the parties and should propose solutions to the conflict. The mediator can intervene spontaneously or may wait until requested by the parties to act as mediator. Mediation and arbitration are similar in that they require the intervention of a third party unrelated to the dispute.
2. Differences of arbitration and mediation: described in the following aspects:
A. The authority of the mediator is limited to proposal and suggestion, the authority of the arbitrator is similar to that of a judge and his decision is binding like a judicial ruling.
B. The decision of the mediation is not binding and therefore cannot be imposed on the conflicting parties.
Sixth: Arbitration and the Judiciary
1. Similarity of arbitration and the judiciary: the judiciary is a means to resolve disputes by binding decision issued by a permanent body of independent judges appointed in advance, therefore arbitration and judiciary are similar in the following aspects:
A. They are means to resolve disputes.
B. Their decisions are binding on the parties to the conflict.
2. Differences of arbitration and the judiciary: described in the following aspects:
A. The judges are appointed in advance and permanently, while the arbitrators chosen by the parties to the conflict to settle certain disputes.
B. The arbitral tribunal may sometimes ignore a particular law; in contrast to the judge, who must rely on the law all the time.
C. The arbitration proceedings are faster than the judicial process, which may be slow.
Legal Characterization of the International Commercial Arbitration
There is a disagreement on the interpretation of Jurisprudence nature of arbitration as some considered it of a convention nature, others of a judicial nature and some considered it of a mixed nature.
First: The Opinion that Arbitration is an Agreement:
1. Justification: it is supposed that arbitration has an agreement character because the end result of arbitration is an agreement (among dispute parties) in the form of arbitration conditions or terms. When dispute parties agree on arbitration, they implicitly waive their claim and deliberately authorize the arbitrator to consider their dispute. Because they do not hold public authority, the parties authorize the arbitrator with non-judicial power. According to this opinion, agreement among dispute parties gives arbitration its execution power. This agreement makes the arbitration decision binding agreeable with the will of parties. In addition, according to this opinion, the objective of arbitration is different from that of the judiciary. Whereas the objective of arbitration is to achieve individual interest to dispute parties, the objective of the judiciary is to achieve public interest to benefit the entire society.
2. Critique: First, exaggerating the role that the arbitration agreement (reached among dispute parties) contributes to arbitration, and especially because disputants request that arbitrators apply the law, not their will, to resolve the dispute. Second, the opinion considers agreement among the parties as implied waiver of their right to proceedings. This is utterly incorrect because under arbitration, a party may at will reject the arbitration agreement and file a claim with a competent court to settle disputes. Third, the opinion relies on the difference in objective between the judicial system and arbitration to characterize arbitration as having an agreement character. Lastly, a flaw with this view that it is based on the difference of the goals between arbitration and judiciary, as explained above. Only this difference is purely theoretical; as with the goal of arbitration is the best interest of the parties to the conflict, it also aims indirectly to the public interest of the community through the resolution of disputes arising between its members.
Second: The Opinion that Arbitration is a Judicial System:
1. Justification: the proponents of this view is that what is relied on identifying the legal nature of the role of the arbitrator and arbitration purposes, notwithstanding the agreement of the parties in the contractual relationship; even though commences with voluntary act, this only begins a preliminary process in order to progress the primary nature of the judiciary. Once in the judicial phase, an arbitrator then applies the rules of substantive law, and bases his decision on the arguments of the parties and through the application of judicial decisions.
2. Critique: Despite the foregoing, the proponents of this trend differed among themselves on the basis of the judicial function of the arbitrator, some of them went to the basis of which is (the authorization from the state); as arbitrators derive their authority to practice the judicial function from the legal system of the State. Which it gives them this power temporarily, and this arbitration is considered an exception to the authority of the state, as the above trend is criticized for exaggerating the judicial status of the arbitration .
Third: The Opinion that Arbitration is a Hybrid Legal System:
1. Justification: in light of the intransigent attitude for proponents of the former views regarding the legal nature of arbitration, a third view has also emerged as a compromise between the two. This view depicts arbitration as a hybrid, and has both a contractual and judicial nature at the same time; a form of a special judiciary.
2. Critique: the view of this trend is that what counts in determining the legal nature of arbitration is taking into account contract and the judiciary; as this system is considered a type of solutions that lead to the balance between the principle of respect for the will and complying with the provisions of law. On this basis Arbitration in the view of proponents of this view is a kind of special judiciary with the basis of agreements; according to the opinion of this view, there are two sides to Arbitration:
A. First, the contractual aspect: The desire of the parties to jointly refer the dispute to arbitrators by express agreement.
B. Second, the legal aspect: Arbitration is a real manifestation of the appearance of justice is set up to resolve disputes in the same manner as the ordinary justice system; Deciding of such disputes in accordance with the specific legal rules and make decisions, called the decisions of arbitration. These decisions have the same weight as enjoyed by judgments of the ordinary courts (102).
I support the view of the third trend, since the arbitration agreement is not strictly per agreement or judiciary, but includes some of both, it has a dual nature; the first phase it is a contract (agreement), and in the second phase it is the judiciary. As evidenced by the following features: the permission to challenge the arbitrators and litigate against them as per what is permitted against judges, the application of a particular law when deciding on the dispute and issuing a resolution, in addition to the obligation to provide reasoned causes for the arbitration award.
Procedures of International Commercial Arbitration
Rulings shall be issued by a competent arbitral tribunal adjudicating a dispute on the basis of an arbitration clause expressly stated in the contract or articles of arbitration. The arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the procedures common to arbitration – as mandated by the adopted system, making the tribunal decision final and binding to concerned party.
Contracts that Contain an Arbitration Clause
First: The Concept of International Commercial Contracts
Most of legal scholarship, and previous cases, indicate that international commercial contracts are not subject to any legal regulation; based on the fact that these contracts spread through various fields of the international commercial business, which has developed due to the increased development of international trade. Therefore, some indicate that it may not be advisable to institute a general definition of “International;” they prefer to decide if its status is “International” or not per the circumstances of each case when it is heard before the court. On the other hand, others define international Commercial Contracts “An agreement between two individuals, a permanent resident and a non-permanent resident, which is subjected to the law of exchange and foreign exchange.” International Commercial Contracts are also defined “...transactions initiate in one country and ends in another; and when there is no related law in effect, the international conventions determine the definition of – International, as it is the source in implementing provisions of matters which it regulates;” Or, the status of – International, could also be “The measure defining - International – lies within the contract, when the contract is drafted in accordance with the exemplary contract form, or if executed according to the general conditions;” Or, the status of – International, could be “Contracts including a foreign element”. In general, the legal characterization of a contract as an “International” is not dependent upon the will of the parties; instead, it is derived from the characteristics of the contractual relationship. It is a legal matter subject to oversight by the relevant court.
Second: The Arbitration Clause in International Commercial Contracts
Arbitration in a contract of international trade is created through the use of a condition called an Arbitration Clause. This condition is voluntary and binding for both sides. It may be included in the contract, or exists as a separate agreement from the letters or telegrams exchanged between the parties. If separate, it must include that which is necessary for all contracts include (mutual agreement, location, and justification) as well as the formalities prescribed in the form of written arbitration clause. In general, the method of referencing the arbitration clause comes in two ways, they are:
1. 1. The arbitration clause is stated in the original contract which is ordinary and customary in international commercial arbitration whereby the parties agree before the emergence of any legal dispute, to settle it in accordance with arbitration.
2. The requirement may be stated in a separate contract, which is called the condition of arbitration (compromise) under which the parties agree to arbitration after a dispute has occurred. In this form, it must be outlined in contract or special agreement, and state the names of the arbitrators, the location of the arbitration and its procedures.
Reflecting on our research, jurisprudence disagreed on the legal nature of Arbitration Clause, in particular the legal characterization of the Arbitration Clause; considering it a condition that only takes effect when a dispute occurs between the parties. It is a situation which may or may not occur. The Arbitration Clause may not be canceled without mutual agreement by both sides
In delving into the legal nature of the arbitration clause, jurisprudence disagreed on the characterization of the arbitration clause legal conformity, as it is considered obligatory under the condition that a dispute to take place between the related parties and it is a matter that may be be believed to happen.
Or, may not take place, then no party may veto it without referring to the other party. However,
The condition to resort to arbitration is more than a promise made by the legally bound parties to settle disputes arising from the contract.
Third: The Exclusiveness of Arbitration Clauses in International Commercial Contracts
Regardless of how the arbitration clause is referenced in the contract, as above stated, it is recognized as an element separate from the original contract. It is independent from the original contract and does not interlace with the pillars of the contract - satisfaction, condition and the cause. The arbitration clause is the agreement of the parties to settle disputes arising between them through it. It is merely a contract within the contract. Whereas the original contract focuses on certain obligations, the arbitration clause focuses on arbitration due process and it is separate and distinct from the original contract. The explanation is that it is derived from the common will of both contracting parties; if for example the original contract is appealed for invalidity, that appeal does not extend to the arbitration agreement, and both parties may continue to adhere to the arbitration clause in order to resolve the dispute.
The justice system stipulates that the Arbitration Clause is independent from the original contract. The Justice system uses its authority in explaining the agreement on the Arbitration Clause in case of ambiguity and contradiction in its provisions; as the justice system explains the arbitration Clause by eliminating any contradictions that may lie within it, on one hand; and, seeks the true intentions of both parties in resolving the dispute through arbitration. Including arbitration clause in a contract does not affect the authority of the justice system, as it is the authority central to deciding all disputes based on their individual circumstances.
Agreement on the Arbitration Clause
First: The Meaning of the Expression “Arbitration Agreements”
1. In order for the parties to be able to resort to arbitration it must be agreed upon; this agreement transfers settlement of disputes from ordinary judges into the hands of Arbitrators. From here the arbitration agreement can be defined as: “An agreement to submit the dispute for resolution to persons outside the competent court” . This agreement can also be defined more broadly as: “A contract in which two or more persons agree to refer a dispute to one or more persons in order to decide an already existing dispute, or one expected to occur in the future, rather than resorting to the Judiciary System”.
2. However, the 1985 model law issued by the United Nations Committee for International Trade Law (UNCITRAL) defines it in greater detail than the two previous definitions. As Paragraph (One) Article (Seven) of this law titled (Definition of the arbitration agreement and framework) stipulates “The arbitration agreement is an agreement between the parties to refer to arbitration all or some disputes which have arisen or may arise between them in a predetermined legal relationship, whether contractual or non-contractual; and the arbitration agreement may be in the form of an arbitration clause in a contract or a separate agreement”.
Second: The Parties to the Arbitration Agreement
1. Although the definition in the parent is not the task of legislation, but the task of jurisprudence; however, we support the definition of the Model Law mentioned above because it paints the clearest and most comprehensive picture of the arbitration agreement. It creates a distinction between the arbitration agreement and the arbitration contract, where if properly drafted empowers the arbitrator conducting the arbitration are to reach a resolution and/or settlement of the dispute. On one side of this contract are the parties to the dispute, but the other side of this contract is different depending on the type of arbitration. If it is ad hoc arbitration (Ad-Hoc), the arbitration contract is between the arbitrator and the parties to the dispute. However, if the arbitration was regulated (Institutional), the arbitration contract takes place between the institution governing the arbitration and the parties who had agreed to the arbitration procedure. An arbitration contract is bilateral no matter how many parties are involved, and the individual arbitrators in institutional arbitration are not party to the arbitration contract. They are however, party to a different contract with institution governing the arbitration process, in accordance with to the arbitration rules. In the latter scenario the parties to the dispute cannot directly contact the arbitrators; instead, contacting them shall be through the chosen institution; which is further evidence that the contract (arbitration contract) is between the parties to the dispute and the institution of their choice for governing of the arbitration process.
Third: The Text Format of Referencing the Arbitration Agreement
1. Arbitration agreement is two types. The arbitration Clause may be instituted prior to a dispute occurrence and is called (Arbitration Clause) and here the arbitration clause may be included in a specific contract, or as independent of any contract; a separate contract. The other type of this agreement is subsequent to the dispute occurrence, and is referred to as consenting to resolve through arbitration.
2. Here, the agreement to arbitrate is referenced only independent of any original contract, it stands as an independent contract; whether if it has determined the arbitration procedures among other in a separate manner, refers to another contract, or refers to the competent institution of arbitration to determine or complete the processes or related actions.
Fourth: The Conditions to be Met in the Arbitration Agreement
The arbitration agreement is considered a contract where, like all other contracts, certain basic elements have to be included, they represent the following:
1. The element of consent: The arbitration agreement is considered a consensual contract, binding for both parties; and it is a form of a compensatory contact. It is a contract because it involves two parties, and it is consensual because it is concluded when there is an offer and acceptance to those terms of the offer, representing the consent of both parties. The consent is demonstrated by the fact that both parties have to have the legal capacity to reach agreement to settle the dispute through arbitration. This is a capacity to act freely with the disputed rights that require settlement. No person is able to enter the arbitration agreement unless he/she possesses such capacity. This law is either the law of the country of which each party is a national of, or where he/she resides and conducts business; as for “in writing,” it is a condition for proof and not for concluding a contract. In terms of being binding for both parties, that is because it contains mandatory commitments for each party that are equivalent to the rights of the opposite party. It is a compensatory contract because each party takes something in return for what he gives.
2. The Element of Dispute: It is represented by the disputes on which there is agreement to settle them by arbitration, but there is also an important issue that has to be taken into consideration, which is the requirement that the subject of dispute is conducive to arbitration settlement which could be determined by referring to the amended Law of Civil Proceedings number (83) of 1969. But the aforementioned law did not specify the cases that are conducive to settlement, which is clarified by Article (704) of the amended Civil law number (40) of 1951; this makes it obvious that the cases that are susceptible to arbitration are also receptive to conciliation. These matters are stipulated in Article (704) of the Civil Code aforementioned; and what is noticeable here is that this article excluded the cases that are related to the public order and morals, to personal status, or to certain crime, excluding the financial obligations stemming from personal status or from committing a crime. However, determining what constitutes public order is extremely difficult because this concept is flexible; it is relative and temporary, and the very notion of public order varies according to the time and place; for what is considered public order in one country might not be the same in another one, by the same token, what is considered public order at a certain time and place might not necessarily be so at different time and same place.
3. The Element of Cause: The element of cause in the arbitration agreement is represented by the desire of the parties to avoid the judicial process and seek arbitration due to its advantages; and what is worth mentioning here is that the temporary absence of the legal capacity of a party to arbitration or his death, does not result in the annulment of the agreement, and it is permissible to suspend arbitration based on certain condition that does not contradict the law; It is also possible for the parties to arbitration to agree to waive it expressly or implicitly, but neither party can do it on its own.
Fifth: The Exclusivity of Arbitration Clause
1. The principle of the independence of the arbitration agreement from the original contract is an established principle in the arbitration—its origin come from the theory of the invalidation of the contract. The arbitration is a genuine contract that establishes the legal link between its parties, and a contract or an agreement concerning the dispute that might arise between them. This is represented by the arbitration clause that is not merely a condition but an agreement by itself. This principle of independence is adopted by many international and national texts including the Model Law for Arbitration that was prepared by the United Nations Commission for the International Trade Law (UNCITRAL). Article (16/1) of this law stipulates that the Arbitration Commission has the jurisdiction to rule on appeals connected to the existence of arbitration agreement that is part of a contract, but is independent of other conditions of the contract, such that any ruling issued by the Arbitration Commission to void the contract does not include the voiding of Arbitration Clause.
2. The arbitration clause has its own structure; as the subject it deals with is different from the original contract. The principle of the independence of arbitration agreement from the original contract has numerous implications, most importantly:
A. The validity of the original contract does not affect the validity of the arbitration agreement, and the validity of the arbitration agreement does not affect the original contract. The arbitration agreement is a stand-alone legal requirement.
B. In the case of the annulment of the original contract, arbitration proceedings and sentencing may still be pursued, and the arbiter can appoint a subject matter expert to help resolve the dispute.
C. If there is a divergence alleged to govern the arbitration agreement from that governing the original contract, the application of a specific law to the original contract may be considered evidence that the intention of the parties to apply that same law to the arbitration agreement, unless there is an agreement to the contrary.
In completion of this research we bring forth a set of important conclusions and recommendations regarding the subject of international commercial arbitration as follows:
Summary of Research
This research demonstrated that international commercial arbitration deals with the settling of the disputes that arise between parties that have international attributes. In trying to fathom its linguistic and technical connotations, we discovered that it is an agreement to refer a dispute that is related to international trade and arises between opponents, to an entity other than the judiciary to resolve it. The arbitration award issued by the said entity is binding. The agreement to arbitrate certain dispute is called “Joint Arbitration,” “Arbitration Agreement,” “Arbitration Contract,” or Arbitration Document.” Also we pointed out that this method of resolving disputes is characterized by speed, fairness, and confidentiality between the two disputing parties with the ability to adopt special regulations to adjudicate disputes in accordance with privacy requirements of international business. The defects that are attributed to the system in question are no more than just general observations which should not detract from the benefits of international commercial arbitration to the international community. The international community views arbitration as a tool for attracting foreign investments and promoting the economy particularly in areas important to local and to public services. We identified the nature of international commercial arbitration and demonstrated its mixed nature which starts as “contractual” and finishes “judicial.”
We have also identified the position of Iraqi legislature on the use of arbitration clause which has only ratified the Geneva Protocol Act No. (34) of 1928 but has not joined the New York Convention, a position which is different than most comparative legal systems. We discussed how Iraq fears that the New York Convention affects national sovereignty, believing that disputes that should be brought to Iraqi courts will be lost to arbitration. Those who work in the arbitration field point out that in spite of the abundance of cases in which Iraq resorted to arbitration, it ended up losing them, which is an indication that the result of arbitration will be an inevitable loss. Nevertheless, we notice from the contracts that were signed by Iraqi governmental entities, stipulated the arbitration clause- especially the big contracts dealing with public services-under the pressure of the investment companies that look for peace of mind and stability, even when there is a fragile legal base, and an absence of rules that regulate arbitration and strengthen its use in the Iraqi legal system.
1. We recommend reconsidering the position of the Iraqi legislature on the commercial international arbitration through reviewing Iraq’s accession to New York Convention. Such a policy will provide real guarantees to foreign investors. More than (128) countries have ratified the Convention, including Arab countries like Algeria, Saudi Arabia, Bahrain, Djibouti, Egypt, Jordan, Kuwait, Morocco, Mauritania, Syria, and Tunisia.
2. We recommend enactment of law on international commercial arbitration to regulate arbitration, in terms of concept, authority, legal procedures, processes and methods of implementation based on model laws and comparative legislation in this area. We could adopt one of the following two models:
A. The Model law on International Commercial Arbitration established by the Commission of International Trade Law at the United Nations (UNCITRAL) and adopted by many countries including Egypt, Oman, Jordan, Yemen, Syria, and Bahrain.
B. The model represented by French Law and adopted by some Arab countries like Lebanon, Algeria, Tunisia, and Morocco
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