INTERNATIONAL COMMERCIAL DISPUTES

(Module -2 )

Dr. Nisha Amol Chavhan

B.A., LL.B., LL.M., NET, Ph.D., PGDHR
 Introduction

• Trade and commerce constantly in action at the international level and as a result of that,
there arise some inevitable disagreements and conflicts between the two contracting parties.

• These disputes can have serious repercussions on the trade links between the parties
resulting in delayed imports and defaulted payments.

• These can also adversely impact the future commercial relations of the parties involved in
the dispute.

• Therefore, the international commercial disputes arising amongst various parties be

resolved and relations must be restored.

• There are two ways of resolving international disputes, the conciliatory means and
forcible means.
There are two ways of resolving international disputes…………….

Concil Forcib
iatory le
• Conciliatory means include arbitration, negotiation, mediation, conciliation,
judicial settlements etc.

• Forcible or compulsive means include retorsion, reprisal, embargo, pacific

blockade etc.

• Although there are two ways available for the settlement of international
disputes, the method that has been most effective in recent times has been
the conciliatory method.

• The various international laws governing international disputes include The

Hague Convention of 1899 and 1907 and the United Nations Charter.
 Reasons of international commercial disputes occurs

Payment Terms

Letter of Guarantee

Foreign exchange rates

Documentation error

Litigation
• Payment terms

• There can be disagreements on the terms of payment among the parties

involved in international commerce.

• There can be times when one of the parties may demand advance payment
from the other party and agree to collect the remaining amount on a later
date.

• The non-payment of this amount by the opposite party can lead to conflicts.

• Conflicts can also arise due to some other factors such as delayed completion
in contracts, modifications in the contract without informing, deteriorated
quality of goods etc.
• Letter of Guarantee

• Disputes can also arise in the failure to issue letters of guarantee while

negotiating the terms of the agreement.

• Letters of the guarantee are issued to decide the liability of the opposite

party in case there is a non-compliance with the terms of the agreement.

• The letters of guarantee can also be misused by the buyer to obtain

additional funds.
• Foreign exchange rates

• In the case of international agreements, the contracts are usually signed in International

currencies.

• Trading in foreign currency exposes the parties to the risks of foreign exchange. There

can be depreciation or appreciation of currency at any point in time.

• This appreciation or depreciation can lead to increased profit margins for one party and

decreased profit margins for the other.

• This is the reason why conflicts may arise in international commercial relations.
• Documentation Error

• There can be various errors in the documents issued by either of the

parties involved in commercial trade.

• The important documents in which there could be errors include a

letter of guarantee, letter of credit, forward contracts etc.

• if there is an error in the letter of credit issued by the importer’s bank,

this may lead to delayed payments from the exporter’s bank leading to
international disputes.
LITIGATION
• Litigation

• International litigation is fundamentally different from domestic litigation in the

sense that it is the litigation between two or more than two disputing countries, or
between a state and an international organization, or between two international
organizations, or between a state and other privatized state entity.

• International litigation is essentially based on consent.

• Consensual basis of litigation means that no party can haul the other entity into court
without the consent of the other party.

• Even the International Court of Justice, which is the premier organization for litigation
at the international level, does not have provisions for compulsory jurisdiction.
 How and when is it used in the resolution of
international commercial disputes?
• There are two phases as to how litigation helps in resolving International commercial
disputes.

• First in the written phase. In this phase, both the parties are required to make written
submissions along with their statements and supporting pieces of evidence.

• The second phase is the most crucial phase in which both the parties confront each other.
This is known as the oral phase and it is made accessible to the public.

• Each party pleads its case and the decision is pronounced by the judges who are
adjudicating the dispute.

• The decision of the court is subject to public and electronic media.

• The path of litigation is followed usually when all other attempts of reaching an
agreement fail.

• This means that it is only when a person has exhausted the other methods such
as mediation, conciliation and arbitration that the person turns on to
litigation.

• All attempts are made to avoid the path of litigation by the disputing parties due
to its cost ineffectiveness.

• The decision to follow the route of litigation is usually political decisions

influenced by the domestic politics of the country.

• It usually indicates a deadlock that has been reached between both the parties.
 Definition of arbitration
• International commercial arbitration means by which disputes arising out of
international trade and commerce are resolved pursuant to the parties’ voluntary
agreement, through a process other than a court of competent jurisdiction.

• The object of arbitration is to obtain a fair resolution of disputes by an impartial

tribunal without unnecessary delay or expense; and the parties should be free to
agree on how their disputes are resolved, subject only to such safeguards as are
necessary in the public interest.

• It is a consensual means of dispute resolution by non-governmental decision

makers and produces a definitive and binding award which is capable of
enforcement through national courts
• An arbitration is international if

• the parties to an arbitration agreement have, at the time of the conclusion of that
agreement, their places of business in different States; or

• one of the following places is situated outside the State in which the parties
have their places of business:

 the place of arbitration if determined in, or pursuant to, the arbitration agreement;

any place where a substantial part of the obligations of the commercial relationship
is to be performed or the place with which the subject-matter of the dispute is most
closely connected;

• the parties have expressly agreed that the subject matter of the arbitration
agreement relates to more than one country
Types of Arbitration

• International commercial arbitration can either be Ad hoc or

institutional.

• Parties are entitled to choose the form of arbitration, which they deem

appropriate in the facts and circumstances of their dispute.

• This necessarily involves the consideration & evaluation of the various

features of both forms of arbitration.

• Ad hoc Arbitration:- These arbitrations are conducted by parties without the
assistance or supervision of an arbitral institution.

• The parties are required to determine all aspects of the arbitration like the number of
arbitrators, manner of their appointment, and procedure.

• adaption of the rules of an arbitral institution, incorporating statutory procedures

such as the Uganda Arbitration and Conciliation Act.

• adopting rules crafted specifically for ad hoc arbitral proceedings such as the
UNCITRAL Rules (U.N. Commission on International Trade Law) which may be used in
both domestic and international disputes, or select another set of procedural rules.

• The UNCITRAL rules are not, for instance, as comprehensive as the arbitration rules of
the ICC.
• Institutional Arbitration:- this is one in which a specialized institution with a
permanent character intervenes and assumes the functions of aiding and
administering the arbitral process, as provided by the rules of that institution.

• It is pertinent to note that these institutions do not arbitrate the dispute, it is the
arbitrators who arbitrate, and so the term arbitration institution is inappropriate and
only the rules of the institution apply.

• Some of these institutions include; the International Chamber of Commerce (ICC), the
London Court of International Arbitration (LCIA), and the American Arbitration
Association (AAA).

• Each of these arbitral institutions, have enacted sets of procedural rules that apply
where parties have agreed to arbitration pursuant to such rules.
• The institutional rules set out the basic procedural framework for the
arbitration process.

• Generally, the rules also authorize the arbitral institution to act as an

“appointing authority” in the event the parties cannot agree; set a
timetable for the proceedings; help resolve challenges to arbitrators;
designates the place of arbitration; help set or influence the fees that can
be charged by arbitrators; and in some situations review the arbitral award
to reduce the risk of unenforceability.

• These institutions do not arbitrate the dispute, but merely facilitate and
provide support and guidance to the arbitrators selected by the parties
 Basic features of International commercial Arbitration

The Agreement to Arbitrate

The Choice of Arbitrators

The Decision of the Arbitral Tribunal

The Enforcement of the Award

• The Agreement to Arbitrate:- International commercial arbitration is founded on the
consent of the parties to the dispute.

• There are two classical forms of arbitration agreements; namely the arbitration clause which
refers future disputes to an arbitration.

• The other is the submission agreement which is usually formulated after a dispute has arisen
and the parties agree to arbitrate.

• The non conventional form is the ‘Standing Offer’ in Bilateral Investment Treaties (BIT’s)
between states.

• By invoking the standing offer in a BIT, when disputes arise; private companies are able to
initiate arbitral proceedings against sovereign states.

• Generally, without a valid arbitration agreement, an arbitral award may not be enforced under
the New York Convention
• The Choice of Arbitrators:-

• The parties have the choice in appointing their own arbitrators, who
may be experts in international arbitration and or persons with
requisite trade or industrial experience in the subject matter of
dispute.

• By this, trade usages and conventions are brought to bear on the final
awards delivered by such arbitral tribunals
• The Decision of the Arbitral Tribunal:-

• It takes the form of an award which is final and binding.

• As compared to judgment of a court, arbitral awards are not

subject to formal appeals, though such decisions could be
challenged on stated grounds.

• for example that the tribunal was not established in accordance to

the agreement of the parties
• The Enforcement of the Award Arbitral:-

• Awards are enforceable like court judgments.

• Where a losing party defaults in satisfying an award, the victorious party can
enforce it in the court of the country, where the losing party has its assets
located.

• The uniqueness about arbitral awards is that it can be enforced

internationally under the New York Convention, unlike a judgment of a court.

• This makes international commercial arbitration attractive to the

international business community.
• Conclusion:-

• Arbitration is private in nature, as such parties will need courts to enforce the
arbitration agreement and also enforce arbitral awards.

• The reality therefore is that without courts support, the arbitral process cannot be
effective.

• The increasing growth in international trade and investments requires the

presence of active international commercial arbitration to settle disputes which
are part and parcel of trade.

• There is need to sensitize domestic courts to support the arbitral process, without
which arbitration will remain ineffective, particularly in developing economies.
THANK YOU