Arbitration is a method of resolving disputes, whereby the parties to a controversy waive their right to go to ordinary courts and entrust the resolution to one or more individuals: the arbitrators. The decision issued by the arbitrators is called an award.
The seat is the legal domicile of the arbitration and the place where the award is deemed to be made for legal purposes. Due to historical reasons, it is often expressed by reference to a city, such as “the seat of arbitration is New York” or “the arbitration will take place in Geneva.”
The seat determines fundamental aspects such as which arbitration law governs the proceedings, or which judicial authority is competent to support the arbitral process and, if necessary, to review or set aside the award.
The seat of arbitration is a purely legal concept, which should not be confused—nor should it necessarily coincide—with the place where the hearings, the arbitrators’ deliberations or other proceedings are held.
There are many ways of classifying arbitration proceedings. The most common classification distinguishes between the following categories:
Arbitration proceedings involving companies or individuals in connection with a commercial transaction
Arbitration proceedings between a sovereign State and a foreign investor, typically decided under international law
An arbitration in which the arbitrators must resolve the dispute by applying the law of a legal system
An arbitration in which the arbitrators shall resolve dispute to the best of their knowledge and belief, without applying rules of law
An arbitration conducted in accordance with the rules of an arbitration institution, which provides administrative support and ensures the proper conduct of the proceedings
An arbitration that takes place without the intervention of an arbitration institution. The procedure is governed by the agreements reached by the parties and, in all other respects, by the applicable arbitration law
Arbitral institutions are responsible for administering and supporting arbitral proceedings. The institution does not have the power to decide on the merits of the dispute; this function lies exclusively with the arbitrators, who are independent persons, chosen by the institution or the parties.
The specific powers of an arbitral institution can be found in its rules. Generally, the institution has the power to intervene in the selection and appointment of arbitrators, to rule on challenges, to designate the venue and the language of the arbitration, to establish and administer the arbitrators’ fees and, sometimes, to make a formal review of the draft award prior to its issuance.
The most prestigious arbitration institutions have specialized staff with proven experience, which allows arbitrations to be handled with greater efficiency and security.
Each arbitral institution has rules of procedure that complement the applicable arbitration law and provide the basic rules governing the arbitration procedure.
The content of the rules of the arbitration institution is deemed to be incorporated into the arbitration agreement by reference, so that the provisions of the rules apply to the arbitration, except where the parties agree otherwise. See Art. 4 of the Arbitration Act 60/2003, of December 23, and Art. 2 of the UNCITRAL Model Law on International Commercial Arbitration.
The number of arbitral institutions—both domestic and international—is vast. Some institutions specialize in international arbitration while others provide services within a particular country or region of the world.
Despite the abundant number of institutions, only a few have sufficient experience and prestige to be trustworthy.
We offer here the TEXT OF THE RULES of some of the most prestigious institutions, with which Wonders&Co has direct experience:
An arbitration agreement is a contract by which two or more parties agree to settle by arbitration all or some of the disputes arising out of a legal relationship—contractual or otherwise—.
The arbitration agreement can be found in the clauses of a contract or be formalized in a separate document. See Art. 9.1 of the Arbitration Act 60/2003, of December 23, and Art. 7 of the UNCITRAL Model Law on International Commercial Arbitration.
The arbitration agreement obliges the parties to comply with its terms (positive effect) and prevents the ordinary courts from hearing disputes submitted to arbitration (negative effect).
The effectiveness of arbitration agreements is guaranteed at the international level by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, made in New York on June 10, 1958. At present 172 States are parties to this treaty. All these countries recognize the validity of arbitration agreements; their courts are obliged to refer the parties to arbitration and to refrain from hearing the dispute. See Art. II of the New York Convention.
An arbitration agreement, like any other contract, is governed by the applicable legal system. It is this legal system that establishes the requirements that an arbitration agreement must meet in order to be valid.
Most legal systems require the agreement to be in writing and to express the unequivocal will of the parties to settle thorugh arbitration any disputes arising out of a specific legal relationship. See Art. 9 of the Arbitration Act 60/2003, of December 23, and Art. 7 of the UNCITRAL Model Law on International Commercial Arbitration.
In addition to meeting certain minimum requirements of validity, it is advisable for the arbitration agreement to address some points that tend to facilitate compliance. These include the following items:
Drafting a good arbitration agreement requires specialized knowledge of arbitration law and familiarity with the specific circumstances of each transaction.
Wonders&Co has extensive experience in negotiating, reviewing, and executing arbitration agreements.
The arbitral award has the effect of res judicata and is immediately enforceable.
The arbitral award is not subject to any ordinary or extraordinary appeal. In most legal systems, only an action for annulment may be brought against the award.
By means of an action for annulment, the judge can rescind the validity of the award and its res judicata effect, but not modify or “rewrite” what was decided.
If the annulment action is successful, the parties will generally have to submit the same dispute to arbitration again.
Each State is free to determine the grounds on which an award made within its territory or under its laws may be set aside or annulled. However, the vast majority of jurisdictions recognize the same limited grounds, namely:
See Art. 41.1 of the Arbitration Act 60/2003, of December 23, and Art. 34 of the UNCITRAL Model Law on International Commercial Arbitration.
An arbitral award may be annulled only by the judicial authority of the State where the seat of arbitration is located or the State under whose law the award was made. See Art. V(1)(6) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, made in New York on June 10, 1958
The enforcement of arbitral awards is usually governed by different sets of rules, depending on whether the award is domestic or foreign. Generally, a State will consider an award to be domestic if the seat of arbitration is within its territory—and foreign if it is not.
Each State freely establishes the rules that allow for the enforcement of a domestic award (i.e., one issued within its territory or in accordance with its laws).
Under Spanish law, the enforcement of domestic awards is basically governed by the same rules as judicial decisions. See Arts. 8.4, 44 and 45 of Arbitration Act 60/2003, of December 23, and Book III of Law 1/2000, of January 7, on Civil Procedure.
The recognition and enforcement of foreign awards are guaranteed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, made in New York on June 10, 1958. At present 172 States are parties to this treaty. All these States undertake to recognize the effectiveness of the foreign award and to grant its enforcement “in accordance with the rules of procedure in force” in the country. See Art. III of the New York Convention.
This Convention also establishes a numerus clausus list of grounds on which a State may refuse to recognize or enforce a foreign award, namely:
See Art. V of the New York Convention.
In Spain the enforcement of foreign awards is governed by the New York Convention as well as by any international convention that is more favorable to the granting of the exequatur of the specific award. See Art. 46 of the Arbitration Act 60/2003, of December 23.
The exequatur is mainly carried out in accordance with the provisions of Law 29/2015, of July 30, on International Legal Cooperation in Civil Matters, which establishes the procedure for the recognition and enforcement of foreign judgments and instruments.
Investment arbitration is a dispute settlement procedure between a sovereign State and a foreign investor.
Investment agreements are international treaties that aim to create a stable legal framework for foreign investment. There are currently some 2,500 investment agreements in force worldwide.
Investment agreements can take various forms. The most common are bilateral investment treaties (known as BITs). Other frequent investment agreements are the following:
Investment agreements contain clauses whereby the State receiving the investment undertakes to treat and protect it in accordance with certain standards of international law.
The substantive protections enjoyed by the foreign investor depend on the particular international agreement that applies. The most common protections afforded to foreign investors are the following:
Despite their generic formulation, international law gives each of these standards of protection a specific technical meaning.
Investment agreements provide mechanisms for the foreign investor to hold the host State liable if it breaches its obligations under the treaty. The most common solution is for the investor to submit its claim to an international arbitral tribunal, initiating an investment arbitration.
Arbitration allows the foreign investor to bypass domestic courts and access independent and highly qualified arbitrators, who will resolve its claim in accordance with the protections afforded by international law.
Often the investor can choose, among the options offered by the investment agreement, the institution to which it entrusts the administration of the arbitration. The most common alternatives are the following:
Wonders&Co has extensive experience in arbitration proceedings at ICSID and the PCA as well as under the UNCITRAL Arbitration Rules.
Commercial mediation is a method of dispute resolution whereby the parties to a dispute arising out of a commercial transaction attempt to resolve it through a negotiation process facilitated or directed by a neutral third party, who has no decision-making power over the dispute and the parties.
There are three features that distinguish mediation from any other method of resolving commercial disputes (negotiation, arbitration, litigation, etc.).
Mediation is an eminently consensual procedure. The consent of both parties must be present at all stages of the process:
Numerous laws and regulations reflect this principle of voluntariness by expressly providing that one or both parties may terminate the mediation at any time. See, e.g., Art. 8.1.b) of the ICC Mediation Rules or Art. 1.1 of Law 5/2012 of 6 July 2012 on Mediation in Civil and Commercial Matters.
Self-determination means that the parties are free to shape almost every aspect of their mediation at will.
Unlike in arbitration, where arbitrators largely govern the process and settle the dispute, in mediation it is the parties who determine by mutual agreement every detail of the procedure and the substance of their negotiations. The mediator is generally limited to proposing, structuring and facilitating the exchange of information and settlement offers.
This principle is now explicitly laid down in numerous mediation rules and regulations. See, e.g., Art. 7.1 of the ICDR International Mediation Rules or Art. 10.1 of Law 5/2012 of 6 July on Mediation in Civil and Commercial Matters.
Mediation is basically a negotiation guided by an impartial and independent third party, chosen by the parties to help them put an end to their dispute. This third party has no decision-making power over the dispute or the parties. His or her intervention serves as a channel for the parties to continue negotiating, since by the time the mediator intervenes, the parties are generally no longer able to communicate effectively.
In fact, as a third party outside the dispute, and with no personal or direct interest in its resolution, the mediator is in a position to detect and filter out those obstacles that prevent fluid and fruitful communication between the parties. See, e.g., Art. 7.3 of the ICC Mediation Rules or Arts. 7 and 8 of Law 5/2012, of 6 July, on Mediation in Civil and Commercial Matters.
These characteristics give mediation its unique value, allowing the parties to focus on their commercial and economic interests in order to find an effective solution.
As a method of resolving commercial disputes, the main advantages of mediation over other mechanisms are as follows:
All that has been said in favour of mediation should not be understood to be to the detriment of arbitration. If the parties cannot settle their differences through mediation, arbitration allows the parties to obtain a remedy without having to fight their case before courts in countries where the administration of justice is sometimes seriously flawed or seriously inconvenient.
In short, both mechanisms occupy their own unique place in the panoply of the most modern methods of dispute resolution.