International commercial arbitration in net era

Co-author: Chambers Yang, Marshal Chen & Morris Lin

With the globalisation of the world economy, all kinds of the international disputes come out frequently. Solving such dispute efficiently and fairly is very key to the development of the global trade. It is noted that many traders usually like to choose the international arbitration institution instead of the national court. Such a common opinion depends on the inherent advantages lying in the international arbitration.

The first advantage is impartiality. It is well known that the international arbitration institutions are usually organised by the independent organisations. For example International Chamber of Commerce (ICC) that was founded in 1923 and headquartered in Paris, the Stockholm Chamber of Commerce (SCC), the HongKong International Arbitration Centre (HKIAC), and so on. They are not the hands of the government. Whereas the national court is usually regarded as the part of the national government, which is supported by the native finance and will works for its native benefits. There is a common opinion that there is always something in the biased judiciary behind the different customs and languages in the different national courts.

The another important advantage of international arbitration is that the parties are free to contract where, when and how the arbitration will be conducted, which is called party autonomy. For instance, ICC, one of the most famous international arbitration institution, has its own set of rules which provides for greater flexibility in allowing parties to choose which method of dispute resolution will apply to their disputes. Like the ICC, the Stockholm Chamber of commerce (SCC) allows for significant party autonomy in selecting the applicable procedural rules to be followed by the arbitrators. Such common principle makes international arbitration be accepted by the international business community more and more. The relative parties can choose the rules that are fittest for them.

The other important reason which makes the international arbitration so popular is there are many multilateral conventions, regional multilateral conventions and some bilateral conventions that confirms the arbitrational awards shall be recognised and enforceable in the ratified countries. Now the most popular convention is New York convention of 1958 that is adopted more than one hundred states. It succeeded on the basis of the 1927 Geneva Convention and the 1923 Geneva protocol. Under the article III, each contracting state " shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon." There are some important regional multilateral conventions. For example, the Panama or Inter-American Convention of 1975 that was promulgated in 1975 has sometimes been described as a carbon copy of the New York Convention, the European or Geneva Convention of 1961 which was adopted in Geneva on 21 April 1961, the main purpose of that convention was to facilitate the efficiency of arbitration within Europe and in particular between the Western and Eastern European countries. The States from the Middle East have also been willing to cooperate between them in the field of arbitration and the most developed stage of their cooperation was the execution of the Amman Convention on 14,April 1987. We can find out that the conventions that deal with the enforcement of the international arbitration award almost cover all over the world. Such widely conventions set up the confidence to the international arbitration in the international business community and make international arbitration much more popular.

There are also some other obvious advantages, such as private, finality and less cost. Generally speaking, The international arbitration is hold in private, which will be benefit for the resolution of the disputes. Both parties can have a friendly talk. Compared with the common litigation, the arbitration should be finality. Both parties should enforce the award once it be issued. Also the fee for international arbitration usually is cheaper than international litigation.

In fact the international arbitration institutions are playing more and more important roles in the solving the international disputes. The international arbitration institutions also try their best to modify their own rules to catch more shares. With the development of the Asia-Pacific economy, more and more international commerce dispute arise. Since 1994, the Hong Kong international Arbitration centre (HKIAC) and the China international economic Trade and Arbitration Commission (CIETAC) together have processed approximately 1000 new cases a year, with the vast majority being disputes between foreign parties. In 1991, Singapore established the Singapore international arbitration Centre. To compete for a greater share of the international arbitration SIAC prints its communications and awards in both Chinese and English, what’s more it adopted the international arbitration act (IAA), which is based on the 1985 Model law on international commercial arbitration published by the united nations commission on international trade law.

From the above introduction, we can find out that the international arbitration play the important role in the international business and every international commercial arbitrational institution try its best to develop its share in the international arbitration, but the way seems almost the same. They always pay attention to the parties’ autonomy. They continuously modify the rules for arbitration so as to give the more choice to the parties to decide. To some degree, the measure took some effect. But there are not some inherent changes. It is well known the party autonomy is the basic advantage for the arbitration. So if one institution wants to increase its share in the international arbitration, it has to find out the existing real disadvantages and overcome them.

As mentioned above, arbitration has so many advantages comparing with the litigation. But it still has very serious shortcomings, and the well-known main shortcomings are expense and delay. Especially, with the rapid development of digital technology, the procedure of international commercial arbitration seems obsolete. Mr. Justice Lander’s ever stated: the arbitration process has been perceived … as having similar shortcomings to the litigation process. The perception is that the procedures in arbitration are not much less cumbersome than the procedures in the litigation process.

Arbitration is still slow and inconvenient.

Arbitration proceedings often take years. Although it may be short than the litigation, it is too long for the rapid development of new digital technology society. If it deals with the hi-tech case, arbitration will become unsatisfactory procedure. Paul D. Carrington ever stated: a few years ago, he met a lawyer from San Francisco who had made twenty-four trips to Asia to participate in the resolution of a single dispute. He reported that the arbitrators who would listen to one witness a week. The witness came from diverse places in Asia and North American. Although this case is a very extreme example, it reflects the reality in some sense. The parties of arbitration live in different countries, the arbitration institution is located in another country, and maybe the arbitrators live in other countries. All of them have to meet in certain place at certain time, but it maybe need a long time to meet together. For instance, if one party is in China, the other party is in Brazil; the arbitrators live in Australia, Russia and the United States. The parties select the arbitration committee in Stockholm, maybe Chinese party needs very long time to get the visa, and Brazil Party is the same. Thus, all of them need spend a long time to start hearing and it is obvious that how inconvenient it is. Sometime, the hearing will be held several times. In some circumstance, in order to correct consequential errors of the expediter, it might be necessary to suspend the hearing while additional is added to the submission. But such interruption will prolong the procedure and make the procedure more inconvenient. The absolute claim that arbitration is quicker than adjudication is simply no longer true.

Arbitration is still expensive.

The direct cost of arbitration mainly includes: (1) the arbitrator’s fee; (2) expenses for arbitrator travel and hearing room rental; (3) the cost of site inspection or experts appointed to assist the arbitrator; (4) legal fee.

Among these fees, legal fee usually takes up most part of the whole cost. The parties have to appoint lawyers to deal with the dispute except very simple case, because the law is very complexity. Legal fee main depends on how much time the attorneys spend. The longer the procedure lasts, the more legal fee is charged. At the same time, the disputes are often concern with professional knowledge, arbitrators have to appoint experts to assessment. The expense of employing these professionals is very high. In addition, the parties and their lawyers and arbitrators usually live in different countries, they have to make international trip to deal with the disputes. The transport fare is also very high. Hence, slow processing of arbitration will waste time and leads to the higher expenditure.

At present, because of these disadvantages, arbitration has been facing significant competition over the last few years from new tools of alternative dispute resolution (ADR) such as negotiation, mediation, conciliation, and mini-trials. These ADR mechanisms have been consistently advanced as alternative meant either to complement arbitration or to displace it altogether. So, arbitration institutions must make use of the advantage of new digital technology to short the processing, decrease the inconvenience and low the expense.

With the quick development of the Internet, e-commerce plays a more and more important role in economic growth. The development of e-commerce also makes online arbitration possible and necessary. The benefits of online arbitration are obviously. The first, convenient. The Internet has created new opportunities for parties to communicate and to engage in transactions at great distance. At the same time, the potential for disputes arising out of such communications or transactions between parties that are physically remote from each other has been increased. On-line facilities can eliminate the barrier of distance. There is no need for the parties and their lawyers and the arbitrators to travel from one side of the Planet to the opposite side. The second, speed. Speed is equal to distance divided by time. The elimination of the barrier of distance by the Internet and the use of the Internet as the medium for resolving disputes will increase the speed with which the dispute-resolution process can be conducted. The third, affordable. Since the cost of post and travel is reduced, and the duration of the proceeding is decreased, the arbitration cost will be decreased accordingly, thus the total cost will be reduced to an affordable level.

Is online arbitration feasible?

Firstly, most parties to the international commercial disputes have the requisite technical facilities to participate in the on-line resolution of the disputes.

Secondly, if arbitration is conducted online, communication is the most important aspect. Nowadays, documents can be sent in electronic form such as by e-mail. But when it is deemed to be sent? And how to prove it? The United Nations Commission on International Trade Law (UNCITRAL) has completed its Model Law in 1996. It is intended to provide national legislators with a set of basic rules that would remove a number of existing impediments to the encouragement and growth of electronic commerce. Although it is not a treaty or convention, it has been enacted in whole or in part or used as the basis for legislation in some countries. Singapore enacted its Electronic Transactions Act 1998, and Australia has also enacted its Electronic Transactions Act 1999 (Cth). The United States of America has also prepared the Uniform Electronic Transactions Act (1999) for being approved by the states. China’s new Contract Law also includes some general provisions about electronic information transferring. The basic rules of these legislations are similar. All these legislations provide a legal framework for e-commerce as well as online arbitration.

Thirdly, some worry about security risks and authentication. The major impediment to the development of electronic commerce is the inherent security risk involved in transferring information over the Internet. It is the same to the online arbitration. When a message is sent over the Internet, any of the information may be intercepted, read and altered. There are two major concerns: first, identification integrity: you are who your signature says you are; and secondly, message integrity: you may have sent the message but has it been tampered with in between the time that it was sent by the sender and received by the intended recipient? These concerns create problems for both parties to the communication.

However, encryption techniques are now available to prevent this interference by encoding the relevant data. The primary purpose of public/private key encryption is to maintain message integrity in the sense that the message can be identified as having originated from the person with access to that private key, that is, identification integrity. To some degree it also protects the security of the information in transit, although it may be read by anyone, in addition to the addressee, who has the sender's public key. There are some other technological solutions based on encryption techniques. Secure Electronic Transactions (SET) protects the confidentiality of the transmission and ensures the authentication of the user. Secure Sockets Layer (SSL) is a protocol to provide security for Web transactions by encrypting packets of information transmitted to the Internet site. The digital or electronic signatures are principally concerned with ensuring message integrity. They ensure that the sender is the person whom they purport to be. Some countries have enacted their legislations on digital or electronic signatures.

In addition there are other general concerns about unauthorised access. The installation of a firewall will prevent unauthorised access to company data.

Fourthly, several dispute-resolution service providers are working on the development of on-line systems for administering dispute resolution, as well as courts in a number of countries. The World Intellectual Property Organization (WIPO) Arbitration and Mediation Centre has developed such an on-line system, which is Internet-based. Digital communication tools have been designed to allow the parties to file requests by completing electronic forms and to exchange information on-line through secure channels. The parties and the decision-maker are able to communicate electronically also through audio and video facilities, where these are available to them. The system also includes such functions as automatic notifications, an electronic fee system, secure facilities for the on-line exchange and reading of documents, and back-end databases to support the logging and archiving of submissions.

In fact, some organizations have already tried to conduct arbitration or similar procedures online. The WIPO recommended using on-line facilities to conduct the administrative dispute-resolution procedure on the domain name disputes. Based on the WIPO's recommendation, the Internet Corporation for Assigned Names and Numbers (ICANN) has approved four dispute-resolution service providers to conduct online dispute-resolution procedures.

What should online arbitration be?

To conduct arbitration online, the international commercial arbitration institutions should first adopt special online arbitration rules and develop online systems. All the arbitration institutions adopt similar arbitration rules. It needs to amend the existing rule slightly to conduct the online arbitration. Most of the modification should be concentrated on communication rules.

In our opinion, at the beginning stage of an arbitration case, the basic communication procedure should be as follows:

  1. the complainant submits its complaint to arbitration institution through e-mail or other electronic forms;

  2. the arbitration institution creates a sub-system (or channel) for this case in particular and nominate a case administrator, only the case administrator is entitled to enter the system and communicate with the parties and the arbitrators;

  3. the case administrator informs the complainant and the respondent the system address and entry password, forward the complaint to the respondent;

  4. the parties select the arbitrators according to the arbitration rule, and the arbitration institution sets up the panel to hear the case;

  5. the administrator informs the arbitrators the system address and entry password.

Thus, the parties and the arbitrators can send documents to the special system of the arbitration institution, and the arbitration institution can send or forward relevant documents to them. But the parties should not communicate with the arbitrators directly. It shall be the responsibility of the sender to retain records of the fact and circumstances of sending, which shall be available for inspection by affected parties and for reporting purposes

When the panel is ready to hear the case, the case administrator informs the parties and the arbitrators the time and entry password to enter the conference system, such as teleconference system, videoconference system and web conference system. If in special circumstance, the parties require or the panel thinks it is necessary to here in-person, there should be such a hearing. If the parties agree to hear the case by e-mail, then it is unnecessary to have a conference and the hearing should be based on the documents.

At earlier stage, since the parties and their lawyers and arbitrators maybe are not expert in conducting arbitration online, there should be both existing rules and the special rules for online arbitration, and model arbitration agreement should be provided. Online arbitration rules only apply to the parties have selected the online arbitration and the e-mail address or other electronic communication measure are available. All the documents should be sent both online and via mail.

In conclusion, we think if arbitration is conducted online, the advantages of arbitration will be maximized, and the disadvantages will be minimized, and arbitration will play a more important role in international business. Actually, the relevant arbitration institutions are forwarding to this objective. The WIPO International Conference on Dispute Resolution in Electronic Commerce is in processing now, and online arbitration is one of the hot topics.

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