Author

Dr Roland Kläger

Partner - Haver & Mailänder

Editors
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Arbitration

I. Definition

1.

Arbitration is the submission of a legal dispute to the binding decision of one or more independent third persons other than a court. The power of the third person (i.e., the arbitrators) to decide the dispute is based on the parties’ consent.

2.

Arbitration is a form of alternative dispute resolution. In contrast to mediation or conciliation, the arbitration procedure ends with the issuance of a binding and enforceable arbitral award, which, in general, cannot be appealed by another arbitral tribunal or court.

3.

Common types of arbitration include the settlement of disputes between private entities regarding their commercial relationship (commercial arbitration), between States (inter-State arbitration), and between a private investor and a State (investor-State arbitration). Arbitration can be conducted in accordance with the procedures agreed by the parties and supplemented by domestic or international law (ad hoc arbitration), or the arbitration rules provided by an arbitral institution (institutional arbitration).

II. History

4.

While its roots possibly lie in early archaic societies,1 the history of arbitration is well documented in ancient Greece and Rome, and famously described in Homer’s Iliad.2 In Medieval Europe, arbitration became popular to settle conflicts between merchants (e.g. Northern Italy, Hanseatic League),3 and was provided for in early codifications of procedural law as a generally non-revisable alternative to court proceedings (e.g. the 1610 Württembergisches Landrecht of Southern Germany).4

5.

From the late 18th century onwards, mixed claims commissions arose which used arbitration as a form of international dispute resolution in the diplomatic relations between States,5 a prominent example being the 1794 Jay Treaty.6 More recent examples such as the 1924 Mexico-US General Claims Commission7 or the 1981 Iran-US Claims Tribunal8 promulgated important decisions influencing modern international investment law. 

6.

The 1899 and 1907 Hague Peace Conferences highlighted the role of arbitration as an instrument to ensure international peace.9 In this context, the Permanent Court of Arbitration was established,10 and the Drago-Porter Convention11 allowed the use of warfare against a debtor state only after an international arbitral award was disobeyed, thereby ending the era of gunboat diplomacy.12

III. Arbitration today

7.

Modern investor-State arbitration is founded on a great number of bilateral and multilateral investment treaties between States which developed during the second half of the 20th century.13 The International Centre for the Settlement of Investment Disputes (ICSID) created by the 1965 Washington Convention provides for the most common set of arbitration rules to resolve investor-State disputes.

8.

The rules governing commercial arbitration are set out in domestic procedural laws, which are widely harmonised on the basis of the 1985 UNCITRAL Model Law on International Commercial Arbitration (revised in 2006).

9.

In addition, arbitral institutions such as the International Court of Arbitration of the International Chamber of Commerce (ICC) and similar institutions existing in many countries provide for a great selection of arbitration rule sets and deliver professional services for the administration of arbitration disputes. The recognition and enforcement of arbitral awards is widely secured on the international level by the 1958 New York Convention, which is ratified by more than 160 States, and the ICSID Convention.

IV. Current discussions in investor-State arbitration

10.

In the context of investor-State disputes, arbitration has become subject to criticism, which sparked wide-ranging reform discussions within many states, the EU, ICSID, UNCITRAL and other fora.14 See further Backlash in investment arbitration. The reforms include e.g. that investor-State arbitration has been questioned within the EU, and UNCITRAL has created a Working Group III evaluating inter alia the creation of a multilateral investment court system with full-time adjudicators and an appellate body.15

Bibliography

Born, G. B., International Commercial Arbitration, Volume I, 2nd edition, 2014.

Bouchez, L. J., The Prospects for International Arbitration: Disputes between States and Private Enterprises, in Soons, A. H. A. (ed.), International Arbitration: Past and Prospects, 1990, p. 109.

Buchwitz, W., Schiedsverfahrensrecht, 2019.

Crawford, J., Brownlie’s Principles of Public International Law, 9th edition 2019.

Gerstenmaier, K.-A., Der Arme Konrad, das württembergische Hofgericht zu Tübingen und die Schiedsgerichtsbarkeit, in Klötzel, Schütze, Gebauer (eds.), Festschrift für Roderich Thümmel, 2020, p. 235.

Hindelang, S., Krajewski, M. (eds), Shifting Paradigms in International Investment Law, 2016.

Homer, Iliad.

Kläger, R., Die Entwicklung des allgemeinen völkerrechtlichen Fremdenrechts – unter besonderer Berücksichtigung seiner Wechselwirkungen mit dem internationalen Investitionsschutzrecht, in Tietje, C. (ed), Beiträge zum Europa- und Völkerrecht, 2011.

Roelofsen, C. G., International Arbitration and Courts, in Fassbender, B., Peters, A. (eds), The Oxford Handbook of the History of International Law, 2012, p. 145.

Sornarajah, M., The International Law of Foreign Investment, 4th edition 2018.

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