ARBITRATION – A GOOD CHOICE FOR DISPUTES WITH ECONOMIC AND COMMERCIAL NATURE

DIPLOMATIC ACADEMY OF VIETNAM
FALCUTY OF INTERNATIONAL LAW
INTERNATIONAL DISPUTE SETTLEMENT



THESIS

ARBITRATION – A GOOD CHOICE FOR
DISPUTES WITH ECONOMIC AND
COMMERCIAL NATURE


Student: Nguyễn Thị Thúy Mai – C34


Hanoi 10/ 2010

ii
TABLE OF CONTENT

TABLE OF CONTENT ii
TABLE OF ABBREVIATION iii
BIBLIOGRAPHY v
INTRODUCTION 1
ARBITRATION – A GOOD CHOICE FOR DISPUTES WITH ECONOMIC AND
COMMERCIAL NATURE 2
I. DEFINITION OF ARBITRATION 2
II. ARBITRATION COLLECTS ADVATAGES OF THE OTHERS 3
1. THE EFFECTIVENESS OF THE COURT 3
2. ADVANTAGES SHARED WITH DIPLOMATIC MEASURES 4

a. FLEXIBILITY AND ECONOMY 4
b. CONFIDENTIALITY 5
III. HIGHLY SIGNIFICANT ADVANTAGES OF ARBITRATION 6
1. A CHOICE OF NEUTRAL FORUM AND A NEUTRAL TRIBUNAL 6
a. NEUTRIALITY OF THE FORUM 6
b. NEUTRAL AND APPROPRIATE TRIBUNAL 7
2. ENFORCEMENT OF ARBITRAL AWARD 8
CONCLUSION 9

iii
TABLE OF ABBREVIATION



Abbreviation
Explanation
%
Percent
3
rd

Third
5
th

Fifth
ADR
Alternative Dispute Resolution
ASEAN
Association of South East Asian Nations

CIETAC
China International Economic and Trade Arbitration Commission
Council Regulation
44/2001 in Europe
European Council Regulation No. 44/2001 of 22 December 2000 on
jurisdiction and the recognition and enforcement of judgments in civil
and commercial matters
e.g.
Exempli gratia (for example)
ed.
Edition
etc.
et cetera (so on and so forth)
i.e.
Id est (that is)
IBA
International Bar Association
ICDR
International Centre for Dispute Resolution
ICSID
International Center for Settlement of Investment Disputes
ICSID Arbitration Rules
ICSID Rules of Procedures of Arbitration Proceedings, 2006 edition
ICSID Convention
Convention on The Settlement Of Investment Disputes Between States
and Nationals of Other States
Inc.
Incorporated

iv

JCAA
Japan Commercial Arbitration Association
LCIA
London Court of International Arbitration
Model Law
UNCITRAL Model Law on International Commercial Arbitration
1985 with amendment adopted in 2006
NAFTA
North American Free Trade Agreement
New York Convention
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, New York, 1958
No.
Number
p.
Page
Para.
Paragraph
pp.
Pages
UNCITRAL
United Nations Commission on International Trade Law
UNCTAD
United Nations Conference on Trade and Development
v.
Versus
WIPO
World Intellectual Property Organization

v

BIBLIOGRAPHY

STATUTES AND TREATIES
1. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York,
1958
2. UNCITRAL Model Law on International Commercial Arbitration 1985 with amendment
adopted in 2006
3. Convention on The Settlement Of Investment Disputes Between States and Nationals of
Other States
RULES
1. European Council Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters
2. ICSID Rules of Procedures of Arbitration Proceedings, 2006 edition
3. UNCITRAL Arbitration Rules 1976
4. IBA Guidelines on Conflicts of Interest in International Arbitration 2004
CASE
1. Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AB)/97/1, (2000)
SCHOLARY WORKS AND ARTICLE
1. Betty Southard Murphy, “ADR’s Impact on International Commerce”, Dispute Resolution
Journal (1993)
2. Christian Burhing – Uhle, “A Survey on Arbitration and Settlement in International Business
Disputes”, in Christopher R. Drahozal, Richard W. Naimark, Towards a science of
international arbitration: collected empirical research, Kluwer Law International (2005)
3. Donald Carper, Bill West, John McKinsey, Understanding the Law, 5
th
ed., Thompson
Learning Inc., (2008)
4. Estela Kennen, Advantages and Disadvantages of ADR - Understanding Alternative Dispute
Resolution (2008), available at />disadvantages-of-adr-a58925
5. Garry B. Born, International Arbitration and Forum Selection Agreements: Drafting and

Enforcing, Kluwer Law International (2010)
6. J.G. Merrills, International Dispute Settlement, Cambridge University Press (2005)

vi
7. Julian D. M. Lew, Loukas A. Mistelis, Stefan Kröll, Comparative International Commercial
Arbitration, Kluwer Law International (2003)
8. Lewis L. Maltby, “Private Justice: Employment Arbitration and Civil Rights”, Columbia
Human Rights Law Review (1998)
9. M.I.M. Aboul Enein, International Commercial Arbitration, at Conference “Preventing and
Managing International Commercial Disputes Towards a EuroMed Alternative Dispute
Resolution Infrastructure”, Rome (2007)
10. Margaret L. Moses, The Principles and Practice of International Commercial Arbitration,
Cambridge University Press (2008)
11. Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter, Redfern and Hunter
on International Arbitration, 5
th
ed. Oxford University Press (2009)
12. Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter, Law and Practice of
International Commercial Arbitration, 3
rd
ed., Kluwer Law International (2004)
13. Norton Rose Group, “Arbitration – a Guide to International Arbitration”, Arbitration Across
the Regions, www.nortonrose.com, access on October 31
st
, 2010, available at
/>df
14. Paul Jacobs, “Arbitration and Mediation: A Viable Alternative to Court Proceedings?”,
published in Stern Cohen, Chartered Accountants, Executive Summary (1995)
15. Peter Sherwin, Ana Vermal, Elizabeth Figueira, Proskauer on International Litigation and
Arbitration: Managing, Resolving, and Avoiding Cross-Border Business or Regulatory

Disputes, Proskauer (2010), available at
16. Richard Smith, Tim Portwood and Michael d. Nolan, “Talking Point: International
Arbitration”, Financial Worldwide (2010)
17. UNCITRAL, Report of the Secretary General: Possible Features of a Model Law on
International Commercial Arbitration, A/CN.9/207
18. UNCITRAL, Report of the Working Group on International Contract Practices on the work
of its third session, A/CN.9/216;
19. UNCTAD, 5.1 International Commercial Arbitration, United Nations, New York and
Geneva (2005)

1
INTRODUCTION

For settlement of international disputes, there are two types of means. The first one is
diplomatic measures, including good office, negotiation, mediation, conciliation and inquiry in case
of public international disputes; or conciliation, mediation, mini-trial, expert evaluation, dispute
board, in case of private international disputes. The second one names legal means, including
arbitration and judicial settlement, i.e., litigation. Those are all means to settle both public
international disputes and private international disputes.
In case of disputes with economic and commercial nature, their parties are reluctant to refer
them to national court as they do not want the government to get involved. This is especially true in
investment disputes where one party is nature person or judicial person and another is a state.
Litigation at court brings many difficulties that businessmen never want to face. However, if they
seek to diplomatic means, there is a bigger risk that their dispute may be impossible to be resolved,
and finally they still have to resort to adjudication. As a result, the best choice for them is
arbitration, which collects many collects many advantages of both litigation and diplomatic
measures (II). Besides, arbitration also has its own advantages, and the most significant ones are
always favored by businessmen (III). After all, it can be concluded that arbitration is a good choice
for the disputes with economic and commercial nature. However, before doing that, it is necessary
to consider the general concept of arbitration (I).

2
ARBITRATION – A GOOD CHOICE FOR DISPUTES WITH
ECONOMIC AND COMMERCIAL NATURE

I. DEFINITION OF ARBITRATION
Means to settle dispute are divided into two groups: diplomatic and legal means. Arbitration
is known as a legal means for dispute settlement
1
. It has become the most prevalent method using
international commercial disputes
2

To ascertain what arbitration is, it is necessary known that there is not an exact definition of
arbitration. “Arbitration” is rarely defined in national law and arbitration rules. Even New York
Convention left the term undefined. The drafters of the Model Law said that defining the term is
“unnecessary”
3
. However, it is believed that the true reason is “difficult to formulate”
4
. In a simply
way, arbitration is known as a specially established mechanism for the final and binding
determination of disputes, by independent arbitrators, in accordance with procedures, structures and
substantive legal or non-legal standards chosen directly or indirectly by the parties
5
.
Although there is no definition, arbitration is characterized by some typical elements. It is a
dispute settlement mechanism producing a final and binding award, based on the consensus of the
parties. Especially, in arbitration, parties can choose who will judge their dispute on their own and
choose the appropriate procedure rules applied, and moreover, request to keep all information in

confidentiality.


1
J.G. Merrills, International Dispute Settlement, Cambridge University Press (2005), p. 91
2
Betty Southard Murphy, “ADR’s Impact on International Commerce”, Dispute Resolution Journal (1993), p. 68
3
UNCITRAL, Report of the Working Group on International Contract Practices on the work of its third session,
A/CN.9/216, paras. 15-18, 17; Report of the Secretary General: Possible Features of a Model Law on International
Commercial Arbitration, A/CN.9/207, paras. 29-30.
4
UNCTAD, 5.1 International Commercial Arbitration, United Nations, New York and Geneva (2005), p. 4
5
Julian D. M. Lew, Loukas A. Mistelis, Stefan Kröll, Comparative International Commercial Arbitration, Kluwer Law
International (2003), para. 1-1

3
II. ARBITRATION COLLECTS ADVATAGES OF THE OTHERS
1. THE EFFECTIVENESS OF THE COURT
Different from diplomatic measures which produces non-binding decisions, parties employ
legal means including arbitration and judicial means when what is wanted it a binding decision
6
. It
means that Arbitral Tribunal must render a determination of rights and obligations of the parties, and
such decision must be final and binding. A procedure that does not lead to a final and binding award
is not arbitration
7
, and such award shall be refused to recognition and enforcement in national court,
under New York Convention

8
.
Diplomatic measures, such as negotiation, mediation, conciliation, and inquiry, aim to arrive
at a negotiated settlement
9
. The parties employ such measures have to face a possibility that the all
effort has failed and the dispute remains unresolved. Even a resolution is reached; there is no
guarantee for it to be implemented. This means that they could invest the time and money in trying
to resolve the dispute by all ways and still end up having to go to legal means
10
which guarantee a
decision to be reached and enforceable at law. The guarantee of a decision is important especially
for disputes with economic nature. Different from other kinds of dispute, they are always in need of
a solution as soon as possible. Therefore, many commercial and investment disputes are entirely
appropriate to be resolved by adjudication
11
.
Like court, arbitration guarantees a final and binding resolution for the parties. For such
advantage, parties to the dispute can make sure that their dispute will properly be resolved.


6
Supra note 1
7
Supra note 4 p. 8
8
New York Convention, article V(1)(e)
9
Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter, Redfern and Hunter on International
Arbitration, 5

th
ed. Oxford University Press (2009), para. 1.75
10
Estela Kennen, Advantages and Disadvantages of ADR - Understanding Alternative Dispute Resolution (2008),
available at

11
M.I.M. Aboul Enein, International Commercial Arbitration, at Conference “Preventing and Managing International
Commercial Disputes Towards a EuroMed Alternative Dispute Resolution Infrastructure”, Rome (2007), p. 2

4
2. ADVANTAGES SHARED WITH DIPLOMATIC MEASURES
Arbitration is also considered as an “alternative dispute resolution” or ADR together with the
means of diplomatic measures
12
, refer to all kinds of dispute resolution methods other than
litigation. Therefore, the latter share many their advantages to arbitration. In arbitration and other
diplomatic measures, parties can keep their control on proceedings and adjust them more suitable
than litigation. As a result, parties can gain many advantages that litigation can never bring
13
. This
part will indicates some prominent advantages only.
a. FLEXIBILITY AND ECONOMY
In general, litigation at court is quite complicated and prolix. Even, courts in many
jurisdictions have been overloaded. In there, parties have to wait for a long time to take their turn.
Differently, Arbitration gives parties substantial autonomy and control over the process that will be
used so resolve their dispute
14
. They are free to choose rules applied to proceedings, modify it or
self-designate one by agreement at any time during the proceedings. Therefore, arbitration is

deemed more flexible than court.
Besides, to restrict cost and time consuming, parties can involve controlling the time limit
for dispute resolution. In general, it takes about one or more a year, or takes longer if the dispute
relates to investment. To evaluate, employment cases, for example, can be arbitrated in half to a
third the amount of time that they otherwise would be litigated
15
. Some experts concern that
arbitration is not in fact cost less money and time as in theory. Arbitration proceeding is easy to be
delayed if one party does not perform his task, e.g., appointing arbitrator. And parties will have to
pay more if they refer to an institutional arbitration. However, in my opinion, arbitration rules all
anticipate and provide provisions to prevent or overcome these circumstances. It is not
unrecognizable that arbitration helps save much time, this means save money. Hence, at any
circumstance, resolving dispute by arbitration is much more economical than by court.


12
Margaret L. Moses, The Principles and Practice of International Commercial Arbitration, Cambridge University
Press (2008), p. 13. This view is mainly adopted in the United States.
13
Supra note 11, p. 5
14
Supra note 12, p. 1
15
Lewis L. Maltby, “Private Justice: Employment Arbitration and Civil Rights”, Columbia Human Rights Law Review
(1998)

5
b. CONFIDENTIALITY
Another advantage that the court could never bring is the confidentiality of the proceedings.
Unlike proceedings in a court of law, where press and public are generally entitled to be present, an

international arbitration is not a public proceeding
16
. In case obligation to confidentiality exists,
neither the parties, arbitrators, witnesses, experts nor any supporting personnel would reveal
anything about the arbitration, including its existence
17
. This provision is included in almost
arbitration rules, e.g., of ICDR, ICSID, LCIA, WIPO, CIETAC, JCAA, UNCITRAL, etc. The main
reason of this obligation is to protect commercial practices, trade secrets, industrial processes and
knowledge of the dispute itself
18
as well as parties’ reputation and prevent the damages which might
be caused when the reputation is hurt. As a result, this advantage becomes one of the most
significant. According to a survey, very few (7%) thought there was no advantage
19
. The ICSID
Tribunal has recognized that one of the main reasons for recourse to arbitration is to avoid
publicity
20
. This kind of advantages can only be found in diplomatic measures and arbitration.
Besides, there are many other advantages that diplomatic measures and arbitration share
commonly. For example, parties seeking to ADR usually wish to avoid confrontation, maintain
friendly relations or to maintain a potentially profitable business relationship
21
because the litigation
process often pushes the parties farther apart, thereby destroying any possibility of a continuing
relationship.
22

16
Supra note 9, para. 2.145
17
Supra note 4, p. 8
18
Norton Rose Group, “Arbitration – a Guide to International Arbitration”, Arbitration Across the Regions,
www.nortonrose.com, acess on October 31
st
, 2010, p. 3, available at

19
Christian Burhing – Uhle, “A Survey on Arbitration and Settlement in International Business Disputes”, in
Christopher R. Drahozal, Richard W. Naimark, Towards a science of international arbitration: collected empirical
research, Kluwer Law International (2005), p. 32
20
Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AB)/97/1, (2000)
21
Supra note 9, para. 1.148
22
Paul Jacobs, “Arbitration and Mediation: A Viable Alternative to Court Proceedings?”, published in Stern Cohen,
Chartered Accountants, Executive Summary (1995), p. 2

6
III. HIGHLY SIGNIFICANT ADVANTAGES OF ARBITRATION
1. A CHOICE OF NEUTRAL FORUM AND A NEUTRAL TRIBUNAL
a. NEUTRIALITY OF THE FORUM
In domestic context, parties who are looking for a binding decision on a dispute will usually
have an effective choice between a national court and national arbitration. In an international context
there is no such choice. There is no international court to deal with international commercial

disputes
23
. In effect, the real choice is between recourse to a national court and recourse to
international arbitration
24
.
Generally, parties do not want to be subject to jurisdiction of the other party’s system
25
,
because otherwise, they will have to face all the difficulties of litigating in an unfamiliar procedure,
in a language that may be foreign and may not be the language of the contract, and not being able to
use its lawyers who are familiar with the company
26
. Such party will also usually have little or no
knowledge of the law and practice of the court and may apprehend that judges may be biased
27
. It is
more serious when one of the parties to the contract is a state or state entity, the private party to the
contract will be reluctant to have its dispute submitted to the national courts of the state party
28

because the State has too many means to influence decisions in its own courts for foreigners to feel
comfortable litigating against it there
29
.
In this circumstance, parties refer the dispute to arbitration with a belief that arbitration will
overcome all those difficulties and reduce inequality
30
. For international commercial disputes,
parties are free to agree upon the seat of arbitration (including third state), procedure rules,

23
Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter, Law and Practice of International Commercial
Arbitration, 3
rd
ed., Kluwer Law International (2004), para. 1-51
24
M.I.M. Aboul Enein, International Commercial Arbitration, at Conference “Preventing and Managing International
Commercial Disputes Towards a EuroMed Alternative Dispute Resolution Infrastructure”, Rome (2007), p. 2
25
Supra note 12, p. 1
26
Supra note 4, p. 16
27
Supra note 11, p. 3
28
Ibid.
29
Supra note 4, p. 16
30
Ibid.

7
languages, etc. For investment disputes, dispute settlement mechanism provided in investment
treaties in such as ICSID, NAFTA, ASEAN, and so on, is seen as help to protect investors.
In brief, arbitration presents as a neutral forum, help overcome difficulties caused by
litigation. This makes parties more comfortable and confident in arbitration proceedings.
b. NEUTRAL AND APPROPRIATE TRIBUNAL
One of the most significant characteristics and advantages as well of arbitration is the

Arbitral Tribunal consists of the judges of parties’ own choice. This is another way to make
arbitration more neutral and appropriate.
Arbitral Tribunal constituted in accordance with parties’ agreement is very important.
Otherwise, the award rendered by wrong Tribunal shall be set aside or refused reorganization and
enforcement
31
. In most rules, if the tribunal is a sole arbitrator, parties may agree upon him, or
recourse to an appointing authority to do so. In case of a panel of three arbitrators, normally, each
party will appoint one arbitrator, and the party appointed arbitrators will appoint their president
32
.
All arbitrators shall be impartial and independent of the parties during entire arbitral proceedings.
33

Under this procedure, parties ensure that their dispute is heard by a tribunal that they trust,
that they consider to be independent, impartial and competent in the relevant subject-matter and that
they know has the required availability
34
. Besides, it is noticeable that arbitrator is not necessarily a
lawyer. Parties can designate upon mutual agreement a sole arbitrator or arbitrators with adequate
subject-matter expertise
35
. For aforementioned reasons, arbitrators perceive that they should be
even-tempered, thoughtful, fair-minded, and reasonable
36
.


31
Model Law, article 34(2)(iv); New York Convention, article V(1)(d)

32
Model Law, article 11; UNCITRAL Arbitration Rules, article 6; etc.
33
IBA Guidelines on Conflicts of Interest in International Arbitration, General Principle 1
34
Peter Sherwin, Ana Vermal, Elizabeth Figueira, Proskauer on International Litigation and Arbitration: Managing,
Resolving, and Avoiding Cross-Border Business or Regulatory Disputes, Proskauer (2010), available at

35
Donald Carper, Bill West, John McKinsey, Understanding the Law, 5
th
ed., Thompson Learning Inc., (2008), p. 184
36
Supra note 12, p. 3

8
To conclude, the Arbitral Tribunal appears more neutral and adjustable to be more
appropriate for each kind of dispute. Those advantages can hardly found in litigation at court.
2. ENFORCEMENT OF ARBITRAL AWARD
Another significant advantage of arbitration is its award is easily enforceable thank to New
York Convention. Different from judgments of court which is subject to appeal, arbitral award is
final and binding upon the parties. Once the award has been made, it will be directly enforceable by
court action, both nationally and internationally
37
.
The New York Convention has been ratified by over 140 countries and, subject only to a
very limited list of exceptions, requires signatory states to recognize arbitral awards rendered in
other countries
38
. This Convention allows contracting states to oppose the enforcement of arbitral

awards rendered in a foreign state only on very limited grounds and prohibits any review of the
merits
39
. Unfortunately for judgments, there are only a few regional arrangements for the mutual
enforcement of foreign judgments (in particular, Council Regulation 44/2001 in Europe), and there
is no global counterpart to the New York Convention for foreign judgments. In the absence of
international treaties, the recognition of foreign judgments in many nations is subject to local law,
which often makes it difficult or impossible to obtain effective enforcement
40
. For this reason, the
enforcement of an international arbitral award is far easier and more certain than that of a foreign
court judgment
41
.
In brief, arbitration guarantees its parties to reach a final and binding award, which
diplomatic measures are impossible to do. Besides, arbitral award is easier to be enforced than
judgment of the court. It can be concluded that in this respect, arbitration is totally preeminent.


37
Supra note 9, para. 1.92
38
Peter Sherwin, Ana Vermal, Elizabeth Figueira, Proskauer on International Litigation and Arbitration: Managing,
Resolving, and Avoiding Cross-Border Business or Regulatory Disputes, Proskauer (2010), available at

39
Richard Smith, Tim Portwood and Michael d. Nolan, “TalkingPoint: International Arbitration”, Financial Worldwide
(2010), p. 3
40
Garry B. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing, Kluwer Law

International (2010), pp. 10, 11
41
Supra note 39

9
CONCLUSION
In brief, arbitration apparently processes more advantages than the others. Arbitration
guarantees a final and binding decision for rights and obligations of the parties to be reached, which
can never be found in diplomatic means. Not only this, settling the dispute by arbitration, parties can
save time and money, which are very important to every businessman. It also helps parties protect
their trade secrets, commercial practices, industrial possess etc., as well as their reputation. Besides,
less formal and confrontative than court, parties can maintain their friendly business relation. Those
benefits and many other unmentioned are collected from the advantages of court and diplomatic
means. Therefore, by seeking to arbitration, parties can both settle their dispute and avoid
government entities, i.e. courts, to intervene.
Besides, arbitration also processes some other highly significant advantages which are
deemed very suitable to disputes with economic and commercial nature. Parties in arbitration can
choose the seat of arbitration on their own, choose arbitration rules or self-designate one, choose the
judges for their dispute on their own whom they see suitable, and so on. Those are included in the
principle of party autonomy which is given prominence in arbitration. Thank to this, parties can
keep a certain control over the arbitration proceedings and make it more efficient. By choosing
arbitrators on their own, parties are confident that arbitration will result in an award which is much
more reasonable and equal.
For aforementioned reasons, arbitration is proved a suitable means for disputes with
economic and commercial nature.