An Introduction to International Commercial Arbi...
1.1 Overview
Arbitration is a private system of adjudication.Parties who arbitrate have decided to resolve their disputes outside of any judicial system.1 In most instances,arbitration involves a final and binding decision,producing an award that is enforceable in a national court.The decision makers,i.e.,the arbitrators,usually one or three,are generally chosen directly or indirectly by the parties.Parties also decide whether the arbitration will be administrated by an arbitral institution or will be ad hoc,which means no institution is involved.The rules that apply are the rules of the arbitral institution,or other rules chosen by the parties.In addition to choosing the arbitrators and the rules,parties can choose the place of arbitration and the language of arbitration.
Arbitration thus gives the parties substantial autonomy and control over the process that will be used to resolve their disputes.This is particularly important in international commercial arbitration insofar as parties do not want to subject to the jurisdiction of the other party’s court system.Each party fears the other party’s “home court advantage.”2 Arbitration offers a more neutral forum,where each side believes it will have a fair hearing.Moreover,the flexibility of being able to tailor the dispute resolution process to the needs of the parties,and the opportunity to select arbitrators who are knowledgeable in the subject matter of the dispute,make arbitration particularly attractive.Today,international commercial arbitration has become the norm for dispute resolution in most international business transactions.
1.2 The Meaning of “International” and “Commercial”
1.2.1 The Meaning of “International”
The term “international” is used to mark the difference between arbitrations which are purely domestic and those which in some way transcend national boundaries and so are international.
The distinction is of importance in practice.Among the countries which have a developed law of arbitration it is generally recognized that more freedom may be allowed in an international arbitration than is commonly allowed in a domestic arbitration.Moreover,some legal systems have special rules for international arbitration,3 which is a further reason for distinguishing between an arbitration which is international and one which is not.Then,what makes arbitration an international one? What are the criteria employed for such a classification?
From the perspective of comparative law,there are two main criteria used,either alone or in conjunction,in defining the term “international” in the context of an international commercial arbitration.And what merits mentioning is that the criterion used in China is different from those used in international arena which boasts its own characteristics.
The first criterion involves analyzing the nature of the dispute,so that an arbitration is treated as international if it involves the interests of international trade.4 This criterion is found simply in French law.5 The International Chamber of Commerce (ICC),which established its Court of Arbitration in Paris in 1923,also adopted the nature of the dispute as its criterion for deciding whether or not an arbitration was an international arbitration under its Rules.6
The second criterion involves focusing attention on the parties; their nationality or habitual residence,or,if the party is a corporate entity,the seat of its central control and management.It is an approach that was adopted,for example,in the European Convention on International Commercial Arbitration of 1961,English Arbitration Act of 1979 and Swiss Private International Law Act of 1989.7 On this criterion,to take a simple example,an arbitration between a British national and a Chinese national would be an international arbitration.
It is worth of noticing that though “international commercial arbitration” is a term widely accepted and frequently used by Chinese scholars,it has been rarely,if any,used by Chinese legislation and judicial practice.Instead,“foreign economic and trade arbitration” is preferable for Chinese legislators and judges.Nevertheless,under the scholarship of Chinese private international law,there is no need to distinguish “foreign” from “international”,insofar as these two terms have the same meaning.[1](https://www.daowen.com)
It is further submitted that both “foreign” and “international” should be interpreted broadly and that once one of the three elements of a legal relationship has contact with foreign jurisdiction,it should be classified as “foreign” or “international” legal relationship.This open approach is called “three-element-test.” Pursuant to this approach,international or foreign arbitrations may arise in the following situations: (1) one party or both parties involved is/are foreigners (or foreign enterprises or organizations); (2) the property in dispute is located in a foreign country; (3) the creation,variation or termination of civil legal relationship occurred in a foreign country; (4) the place of arbitration is located in a foreign jurisdiction; (5) the arbitrations that involve Hong Kong,Macao,or Taiwan are deemed as foreign or international arbitration.
1.2.2 The Meaning of “Commercial”
It is accepted practice to speak of international commercial arbitration,rather than simply of international arbitration.[2]The qualification of commercial is used in the civil law countries,which distinguishes the commercial relations from civil relations in a narrow sense.This distinction is important in the civil law as regards to arbitration,since in many countries only disputes arising out of commercial matters may be submitted to arbitration.Thus it would be permissible to hold an arbitration between two merchants over a commercial contract which they had made in the course of their business but not,for example,in respect of an agreement for the separation of property made on the divorce.
Recognizing the fact that in some countries arbitration is only permissible in respect of commercial matters,most international conventions on arbitration,the New York Convention in particular,emphasize that they are applicable “only to differences arising out of legal relationships,whether contractual or not,which are considered as commercial under the national law of the State making such declaration.”8 This is the so-called commercial reservation.
This further highlights the importance to know whether the legal relationship of the arbitration was a commercial relationship or not.The question will arise if it comes necessary to seek recognition or enforcement of a foreign arbitral award in a state which has adhered to the New York Convention,but which has entered the commercial reservation.It will then be necessary to look closely at the law of the state concerned to see what definition it adopts of the term “commercial.”9
Internationally,the approach is to interpret the term “commercial” as widely as possible.Although problems have occasionally arisen because courts of particular countries have adopted a narrow definition of commercial,the general approach of courts of many nations,including China,is to define commercial so as to embrace all types of trade or business transactions.The UNCITRAL Model Law on International Commercial Arbitration,as a typical example,does not define the word but states:[3]
The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature,whether contractual or not.Relationships of a commercial nature include,but are not limited to,the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air,sea,rail or road.
Like the Model Law,China adopts an open-ended definition of “commercial” which is reflected in “The Notice on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards to Which This Country Has Become Party” issued by the Supreme People’s Court,as its Article 2 provides as follows:10
As per the commercial reservation declaration made by this country when becoming party of the said convention,the said convention is only applicable in this country to disputes on contractual and non-contractual commercial legal relationships according to the laws of this country.The so-called “contractual and non-contractual commercial legal relationships” concretely refers to the relationships of economic rights and obligations on contracts,rights invading or in light of pertinent legal provisions,such as disputes concerning sales of goods,lease of property,projects contracting,processing work,technology transfer,joint venture,natural resources prospecting and exploiting,insurance,credit,labor services,agent,counseling services,sea,civil aviation,railway and highway passenger-cargo transportations,and product liability,environmental pollution,marine accident and ownership and so on,but excluding disputes between foreign investors and the governments of host countries.
From the above provision,it can be concluded that Chinese official interpretation of “commercial” is very similar to the interpretation of the Model Law; as a matter of fact,the former is even more expansive than the latter in some respects.