ARBITRATION

Arbitration has been defined by the International Law Commission as a procedure for the settlement of disputes between States by a binding award on the basis of law and as a result of an undertaking voluntarily accepted. Thus, when a dispute is submitted by the parties to a body of persons or to a tribunal for their legal decision, the process for the settlement of dispute is called arbitration. Arbitration is the most important method of settling international differences by amicable means. As Lawrence points out: Its value resides in its judicial or quasi-judicial character. It signifies the reference of the dispute to an individual or small group of individuals, to whom the parties state their respective cases, and whose decision they are in honor bound to obey, and in fact have always obeyed, the only instance to the contrary being due to the fact that the arbitrator had exceeded his powers. When a dispute is submitted to arbitration, the matter takes on the semblance of a trial before a court. In the case concerning Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Qatar v. Bahrain)1 the International Court of Justice stated that the word arbitration, for purposes of Public International Law, usually refers to the settlement of differences between the States by judges of their own choice, and on the basis of respect for law.2 It is important to note that before a dispute is referred to the arbitration, the consent of parties is necessarily required to be obtained for doing so. The consent may be obtained either before or after a dispute has arisen between the parties. The consent may be expressed in a

1
2

The judgment was delivered by the Court on March 16, 2001. The above wording was adopted under Article of the Hague Convention for the Pacific Settlement of International Disputes of July 29, 1899 and under Article 37 of the Hague Convention of October 18,1907. Also see the Advisory opinion of November 21,1925 of the Permanent Court of Justice in interpreting Article 3, Paragraph 2 of the Treaty of Lausanne (PCIJ, Series B, No. 12, p. 26).

special agreement after a dispute has arisen between the parties. The special agreement is usually called compromise. For instance, an agreement was concluded between India and Pakistan to refer the Kutch dispute to arbitral tribunal. Consent of the parties is also obtained before a dispute comes into existence. Such consent may be expressed in general arbitration treaties, by which the parties undertake to submit to arbitration all or any class of future disputes between them. The Convention concerning the Pacific Settlement of Disputes of 1903 between Great Britain and France is an instance of a Treaty where arbitration was provided for the settlement of disputes between the parties. Many treaties concluded later on prescribed the mode of arbitration in case of the occurrence of a dispute. States are, however, under no obligation to submit their dispute to arbitration, unless they have bound themselves beforehand by a treaty. But once they have referred the matter to arbitration, the disregard to the award means a breach of promise and the award is final, unless it is vitiated by fraud, collusion and the like, or the arbitrator, as pointed out above, has exceeded his powers. Therefore in simple language, Arbitration is the submission of a dispute to a judge or judges, who constitute the arbitration commission or tribunal. The judges are called arbitrators who are appointed by the disputant parties by themselves and the judgment of an arbitrator or arbitrators is known as an award.

Characteristics of Arbitral Tribunals

Although individual tribunals differ in origin, structure and competence, one can identify certain common characteristics of all international arbitral tribunals which are as follows: 1. A tribunal is constituted to hear a particular, case only, and its composition 'is determined, to some extent, by the parties themselves. 2. An arbitral tribunal does not, as a matter of principle, determine its own jurisdiction but has to decide the dispute as submitted voluntarily or compulsorily by the parties. 3. An arbitral tribunal makes its award in accordance with the rules adopted for that purpose by the parties or by rules otherwise binding the tribunal which are primarily the rules of International Law. 4. The parties have control over the procedure to be followed, and the tribunal's award is, in principle, final, since the object is to settle the dispute.

These criteria distinguish international arbitration from other methods of peaceful settlement of disputes. On the one hand, they distinguish it from proceedings before international courts, arid on another hand; they distinguish it from nonjudicial peaceful modes of the settlement of disputes which are intended to bring about a settlement by conciliation or mediation-rather than a decision.

COMPOSITION The composition of an arbitral tribunal is based on the principle that the arbitrators are chosen by the parties to the dispute, either by agreement between them or by a procedure laid down in the arbitration agreement. Although some of the arbitrations are conducted by a single arbitrator, this is only suitable for a relatively simple case involving a narrow, essentially factual point, it presently
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occurs only in exceptional cases. It is normally better to have one arbitrator appointed by each party. As a rule, tribunals have three or five members. If the disputant parties fail to appoint their arbitrators, the appointment may be made by the President of the International Court of Justice or by the SecretaryGeneral of the United Nations, as per the provisions of the treaties. For instance, The Kutch dispute between India and Pakistan was to be decided by three arbitrators, one appointed by India and one by Pakistan. The third arbitrator was to be appointed by the two arbitrators, so appointed by the parties. India nominated Ales Bebber, an individual from Yugoslavia, and Pakistan nominated Nasrollah Entezam, a diplomat from Iran. The two arbitrators, so nominated could not agree on the nomination of a third arbitrator, and therefore, it was agreed that the Secretary-General of the United Nations shall nominate the third arbitrator. It was done so by him by nominating Gunnar Lagergen from Sweden who acted as a Chairman of the Arbitral Tribunal. Arbitrators appointed by each party should be able to explain further their states position, and be able to share what maybe a considerable workload. Although it maybe more common to have only three arbitrators (as in the Iran-US Claims Tribunal) this is not ideal since the chairman then needs the support of one of the two national arbitrators in order to reach a decision. He may therefore have to compromise, whereas three neutral arbitrators should be better able to reach an impartial decision.

Law and Procedure of Arbitration

The treaties of arbitration usually lay down the law and procedure which shall be applied by the arbitrators. Normally, general rules of International Law are applied by them but they may specify any other law in the compromise. For instance, in

the British Guiana and Venezuela Boundary dispute,3 it was stated that occupation for fifty years should be accepted as constituting a prescriptive title to territory and in the Trial Smelter case4 the law to be applied was declared to be U.S. Law and practices with regard to such questions as well as International Law. Arbitrators may apply the rules of equity, or decide the case ex aequo et bono if treaties of arbitration so provide, or if the parties so desire; The Kutch Tribunal applied the principle ex aequo et bono. Treaties of arbitration normally lay down the procedure which is to be followed by the arbitrators. Agreements sometimes specify that the decisions should be reached in accordance with law and equity and this means that the general principles of justice common to legal systems should be taken into account as well as the provisions of international law. Such general principles may also be considered where there are no specific rules covering the situation under discussion.5 The rules of procedure of the tribunal are often specified in the compromise and decided by the parties by agreement as the process commences. Hague Convention I of 1899 as revised in 1907 contains agreed procedure principles, which would apply in the absence of express stipulation. It is characteristic of arbitration that the tribunal is competent to determine its own jurisdiction and therefore interpret the relevant instruments determining that jurisdiction.6 The decision of the arbitration, commonly "known as award, is binding to the parties. Once it enters into effect, the award settles the dispute finally since recourse to the tribunal implies an undertaking to submit to the award. It must be
3 4

92 BFSP, p. 970. 259 3 RIAA, 1938, p. 1908; 9 AD, p. 315. I.L.R. Vol 9, p. 315. 5 See e.g. Re Competence of the Conciliation Commission 22 ILR, p. 867 and above, chapter 3, p. 98. See also article 28 of the 1928 General Act as revised in 1949, article 10 of the ILC Model Articles and articles 26 and 28 of the European Convention for the Peaceful Settlement of Disputes. Note in addition the Rann of Kutch case, 50 ILR, p. 520. 6 See the Nottebohm (Preliminary Objections) case, ICJ Reports, 1953, pp. 111, 119; 20 ILR, pp. 567, 571-3. See also Arbitration Commission on Yugoslavia, Interlocutory Decision of 4 July 1992, 92 ILR, pp. 194, 197.

carried out in accordance with the requirements of good faith. However, if the arbitrators have exceeded their powers, as in, where the tribunal decides a question not submitted to it, or applies rules it is not authorized to apply. The main example of the former is the North-Eastern Boundary Case7 between Canada and the United States, where the arbitrator, after being asked to decide which of two lines constituted the frontier, in fact chose a third line. It is sometimes argued that invalidity of the compromise is a ground of nullity,8 while the corruption of a member of the tribunal or a serious departure from a fundamental rule of procedure is further possibilities as grounds of nullity.9 Article 35 of the Model Rules on Arbitral Procedure drawn up by the International Law Commission, for example, provides for a successful plea of nullity in three cases: excess of power, corruption of a tribunal member or serious departure from a fundamental rule of procedure, including failure to state the reasons for award. Essential error has also been suggested as a ground of nullity, but the definition of this is far from unambiguous. It would appear not to cover the evaluation of documents and evidence, but may cover manifest errors such as not taking into account a relevant treaty or a clear mistake as to the appropriate municipal law. Of course, once a party recognizes the award as valid and binding, it will not be able to challenge the validity of the award at a later stage. For instance, the award in the Kutch case was vehemently criticized on the ground that it has political overtones, it was accepted by India.

See C.C. Hyde, International Law, 2nd edn, Boston, 1945, vol.III, p. 1636. See also The Pelletier Case, ibid., p. 1640; the Panama-Costa Rica Boundary Case, 11 RIAA, 1900, p.519 and US Foreign Relations, 1914, p.994; the Chamizal Case, 11 RIAA, p.309, and the Cerruti arbitrations, 6 AJIL, 1912, p.965. 8 See e.g. Murty, 'Settlement', pp. 693-4, and A. D. McNair, The Law of Treaties, Oxford, 1961, pp. 66-77. 9 See Schachter, 'Enforcement', p. 3. See also, as regards corruption, Moore, International Arbitrations, vol. II, pp. 1660-4, and the Buraimi arbitration, Wetter, Arbitral Process, vol. Ill, p. 357 and 545 HC Deb., col. 199, 1955.

In certain circumstances, it may be open to a party to request a revision or reopening of the award in order to provide for rectification of an error or consideration of a fact unknown at the time to the tribunal and the requesting party which is of such a nature as to have a decisive influence on the award.

EVOLUTION
The procedure of arbitration grew to some extent out of the processes of diplomatic settlement and represented an advance towards a developed international legal system. In its modern form, it emerged with the Jay Treaty of 1794 between Britain and America,10 which provided for the establishment of three joint mixed commissions to solve legal disputes between the parties which could not be disposed off otherwise in the course of the negotiation of the Treaty.11 Although these commissions were not strictly speaking organs of third party adjudication, two of the three performed successfully, and the result was to stimulate a fresh interest in the process of arbitration which had fallen into desuetude for about two centuries. The procedure was successfully used in the Alabama Claims Awards12 of 1872 between the two countries. In this case, America had claimed compensation from Britain on the ground that it had violated the laws of neutrality. The arbitrators gave their award in favor of America and held that Britain was liable to pay a compensation for the damage caused by a Confederate warship built in the UK. According to Judge Manley O. Hudson:13
10

The Treaty came into force on October 28, 1795. The Treaty was a general Treaty of friendship, commerce and navigation concluded after the War of Independence. 11 See Simpson and Fox, International Arbitration, pp. 1-4, and R. C. Morris, International Arbitration and Procedure, New Haven, 1911. Note also the Treaty of Ghent, 1814, which incorporated the concept of a neutral element within the commission. See also G. Schwarzenberger, 'Present-Day Relevance of the Jay Treaty Arbitrations', 53 Notre Dame Lawyer, 1978, p. 715. 12 Washington, DC, 1898, vol. I, p. 495. 13 Hudson International Tribunals (1944) p 5.

'The success of the Alabama Claims Arbitration stimulated a remarkable activity in the field of international arbitration. In the three decades following 1872, arbitral tribunals functioned with considerable success in almost a hundred cases; Great Britain took part in some thirty arbitrations, and the United States in twenty; European States were parties in some sixty, and Latin American States in about fifty cases. Clauses providing for the submission of disputes to arbitration were also frequently inserted in treaties, particularly law-making conventions, and to quote Judge Hudson again,14 arbitration thus became the handmaiden of international legislation in as much as disputes concerning the interpretation or application of the provisions of conventions could be submitted to it for solution. Also a number of arbitration treaties for the settlement of defined classes of disputes between the states parties were concluded. This success stimulated further arbitrations, for example the Behring Sea and British Guiana and Venezuela Boundary arbitrations at the close of the nineteenth century.

PERMANENT COURT OF ARBITRATION

Origin The Permanent Court of Arbitration owes its origin to two Conventions on the Pacific Settlement of International Dispute of 189915 and 190716. The First Convention (Hague Peace Conference of 1899) envisaged the organization of a Permanent Court of Arbitration with an International Bureau at The Hague [for
14 15

Loc. cit, p 6. (1901) U.K.T.S. 9, Cd. 798. The Convention entered into force in 1900. 16 (1971) U.K.T.S. 6, Cmnd. 4575. In force 1910. 108 parties including the U.K., to one or both Conventions. The 1907 Convention revised the 1899 Convention in the light of the experience of the court in its early cases.

which the Peace Palace, now also home of the International court of Justice, was opened in 1913] to serve as its Secretariat and a Permanent Administration Council.

Structure The structure of the Permanent Court of Arbitration embraces three institutions, viz. 1. The panel of members of the Court 2. An Administrative Council 3. An International Bureau

Panel of Members Each of the States who was a party to either of the two Conventions of 1899 and 1907 is entitled to name at most four members of known competence in questions of International law, of the highest moral reputation, and disposed to accept the duties of arbitrator.17 Their appointments are for a period of six years and are renewable. Out of the list of the persons so designated by the States, which is duly notified to all the States parties to the Convention, the parties to the dispute are free to select the members of the Tribunal. In case of disagreement on the selection of arbitrators each of the parties was to appoint two, and the four thus selected were to appoint an umpire, all being chosen from the same list. The Second Convention, i.e., The Hague Conference of 1907 made some improvements in the scheme and provided for summary procedure in disputes about matters of secondary importance. Each of the parties at variance was to appoint two arbitrators as before but only one could be its national, or chosen from
17

Article 44 of the Convention as revised in 1907.

among the persons selected by it as members of Permanent Court of Arbitration. Article 37 of the Hague Convention I of 1907, provided: International arbitration has for its object the settlement of disputes between States by Judges of their own choice and on the basis of respect of law. Recourse to arbitration implies an engagement to submit in good faith to the award. The Permanent Court of Arbitration was not a Court, but merely a panel of names from which arbitrators for temporary arbitral tribunals are chosen. As such it was not a Court in the real sense and had no permanency. As stated by P. E. Corbett, though it never sits and has no jurisdiction this body of jurists rejoices in the name, Permanent Court of Arbitration.

Administrative Council This Council consists of the Minister of Foreign Affairs of the Netherlands as president and of the diplomatic representatives accredited at The Hague by the States to the Convention.

Bureau The Bureau of the Court is established at the Peace Palace at The Hague and consists of the Secretary-General of the Permanent Court of Arbitration and a small staff. The Bureau conducts the administration and is in charge of the archives. It also serves as a mediator for the States who want to make use of the court.

Finances Though PCA is not a Court but a permanent facility (including a courtroom, chambers, offices, library, secretariat services and a list of potential arbitrators)
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available to states and international organizations to help them conduct arbitrations, whether under the 1899 or 1907 Hague Conventions, or otherwise. The cost of its services are met by the parties in dispute, although they are less than those of other arbitrations because the basic running costs of the International Bureau are met by the (approximately 103) parties to one or both Conventions. Since 1902, the PCA has provided various types of services to much arbitration. More recent examples include the US v. UK Heathrow User Charges Arbitration 1988-9318 and the Eritrea-Yemen Arbitration 1996-2002.19

Nature of the Court The Permanent Court of Arbitration is not a court, but merely a panel of arbitrators out of which a tribunal could be formed20. As such it has no permanency in the real sense of the term. Manely O. Hudson observes that the name of the Permanent Court of Arbitration is really a misnomer, and by creating exceptions which could not be fulfilled, it may have been responsible for deception of popular opinion. The Permanent Court of Arbitration is not really a court. Nor is it in any accurate sense a tribunal, though it is often referred to as The Hague Tribunal: instead it is a device for facilitating the creation of ad-hoc tribunals. It is permanent only in the sense that a panel is permanently available from which arbitrators may be chosen, that the Administrative Council is constituted as a continuing body, and that a permanent International Bureau exists to facilitate the creation of tribunals. The PCA has developed model clauses and procedural rules for fact-finding, conciliation and various types of arbitration. Whatever the nature of the dispute, the parties are free to determine most aspects of the procedure and to decide the
18 19

See 88 AJIL, 1994, p.739, note 4. See 114 ILR, p.1 (Phase One: Territorial Sovereignity) and 119 ILR, p. 417 (Phase Two: Maritime Delimitation). 20 There are currently 107.

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extent to which the International Bureau should be involved. It is increasingly involved with International commercial arbitrations (such as ICSID) between States or International organizations and private persons or entities, with the PCA Secretary-General being called upon to designate arbitrators in default of their appointment by the parties. He is also the appointing authority in commercial arbitrations conducted under the UNCITRAL Arbitration Rules.

Awards Twenty awards were given by the Permanent Court of Arbitration at The Hague between 1902 and 1932, including those of the North Atlantic Fisheries Disputes between U.S.A and Great Britain (1910), Savarkars Case in 1911 and the dispute between Norway and U.S.A. regarding requisition of Norwegian ships in the First World War (1922).

Cases before the Tribunal 1. North Atlantic Fisheries Case (1910) A special agreement was drawn up on January 27, 1909, whereby the American and British Governments agreed to refer certain questions to an Arbitration Tribunal chosen from the members of the Permanent Court of Arbitration at The Hague. The United States claimed that the right to take fish on certain parts of Newfoundland and further claimed that the regulation with regard to fisheries must be made jointly by Canada and Great Britain and U.S.A. and not by Great Britain and Canada alone. The Tribunal by its award held that the liberties of fishery granted to the United States did not constitute an international servitude in their favour. It further held that the exercise of the right of the Great Britain to make regulations without the consent of the United States was limited in that such regulation must be bona fide and must not be in violation of the treaty of 1818.
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2. Savarkars Case (1911) Savarkar, an Indian leader being a prisoner on a British mail steamer ship, Morea, escaped while being transported from England to India when the ship touched Marseilles. He was arrested by the French police and handed over to the captain of the ship without any extradition proceeding. The French demand of the restitution of the fugitive was refused by the British government. The question that felt for consideration before the Tribunal consisting of five members of the Permanent Court of Arbitration was whether in conformity with rules of International law the fugitive should be restored to the French government. The Tribunal answered the question in the negative, observing that there was no rule of International law which imposed in such circumstances an obligation on the power which had in its custody a prisoner to restore him because a mistake had been committed by the foreign agent who delivered him up to that power. Some other cases decided by the Court of Arbitration are Pious Fund Case (1902), the Japanese House Tax Case (1905), the Casablanca Case (1909), Maritime Frontiers Case (1909) between Norway and Sweden, Canevaro Case (1912) against the Peruvian government, Russian Indemnity Case (1912) between Turkey and Russia, Carthage and Manouba Case (1913) between France and Italy, Timor Case (1914) between Netherlands and Portugal, Religious Properties in Portugal Case (1920) between France, Great Britain, Spain and Portugal, Dreyfus Case (1921) between France and Peru, Islands of Palmas Case (1928) between U.S.A. and Netherlands and Chevreau Case (1931) between France and Great Britain.

The Permanent Court of Arbitration, which was maintained by the Second Hague Peace Conference 1907, is still in existence, although no case has been referred to a Tribunal constituted under its provisions since 1932.

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The Second Hague Peace conference had envisaged the establishment of two bodies whose permanent character was much more marked than that of the Permanent Court of Arbitration: an International Prize Court and a Judicial Arbitration Court. These attempts, however, did not succeed.

It may be noted that though the Permanent Court of Arbitration still exists and is situated in Hague yet states do not make frequent use of this Court. Despite attempts in the General Act for the Pacific Settlement of International Disputes (1928) to rationalize and systematize further the recourse to arbitration, the Court has fallen into disuse.

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BIBLIOGRAPHY
Shaw, Malcolm N. International Law. Cambridge University Press. New Delhi. 6th Edition; 2008.

Shearer, I.A. Starkes International Law. Oxford University Press. New Delhi. 11th Edition

Bowett, D.W. Law of International Institutions. Universal Law Publishing Company Pvt. Ltd. 4th Edition; 2003.

Kapoor, Dr. S.K. International Law and Human Rights. Central Law Agency. Allahabad. 16th Edition; 2008.

Wallace, Rebecca M.M. International Law. Universal Law Publications. New Delhi. 3rd edition; 2003.

Aust, Anthony. Handbook of International Law. Cambridge University Press. 2005.

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