Model Law for US International Commercial Arbitration

INTRODUCTION

With an increase in globalization, a remarkable increase in trade between different nations has also been witnessed. This increase in trade among nations at times becomes the reason for conflicts when the ideas of two different entities that belong to two different places are contradictory. These contradicting views may lead to various disputes among parties, and to resolve the disputes we require a uniform law that can govern both the parties equally because the domestic laws are usually seen as favoring their parties. So, on 21 June 1985, the United Nations Commission on International Trade Law adopted the Model Law on International Commercial Arbitration (UNCITRAL Model Law). This Model Law was formulated for the area of international trade and it was established by the General Assembly of the United Nations for providing an alternative dispute resolution mechanism to nations over trade disputes and allow free flow of trade.

The UNCITRAL Model Law is an international legal framework that provides a set of rules on international commercial arbitration conduct and management. It is one of the three pillars of arbitration created by the United Nations to assist countries with different legal systems in harmonizing their arbitration laws. As this Model Law is not a treaty, Governments are free to copy or modify it as per their will, and over 70 States have already used it to date. The Model law comprises 36 articles divided into 9 chapters covering all stages of arbitration starting from the composition of the Arbitral Tribunal to the recognition and enforcement of the arbitral award. It also limits the intervention of the court in the recognition and enforcement of the arbitral award and by doing so it maintains the balance between different countries and ensures them, the freedom to choose their procedure which is required to maintain peace, and fill the potential gaps between the parties. The main objective of UNCITRAL Model Law was to remove hurdles that may affect the smooth flow of trade among nations and is designed to assist states in modernizing and reforming their laws in arbitration. This Model Law was adopted universally and was required to be given due consideration by all states in course of setting up their domestic legislation on arbitration. This needs to be done to maintain uniformity in arbitration proceedings while dealing with international cases/disputes. The apex court of India in Voestalpine Schinen GmbH v. Delhi Metro Rail Corporation Limited (2017) has stated that “This model law of UNCITRAL provides the framework in order to achieve, to the maximum possible extent, a uniform approach to the international commercial arbitration. The aim is to achieve convergence in arbitration law and avoid conflicting or varying provisions in the arbitration Acts enacted by various countries.”

COUNTRIES THAT ADOPTED UNCITRAL MODEL LAW

There are many countries today that follow the rules laid down under the UNCITRAL Model Law, for making the rules for their domestic arbitration. Most of the East Asia nations have modernized and harmonized the laws for international arbitration by adopting the rules set under the UNCITRAL Model Law like Japan, Singapore, Hong Kong, South Korea, etc. These nations have adopted the Model Law after making minor amendments. Malaysia has adopted the UNCITRAL Model Law. Section 37 of the (Malaysian) Arbitration Act 2005 (Malaysian Act) is modelled on Article 34 of the UNCITRAL Model Law, and incorporates all its grounds.

Similarly, India too has adopted the pattern close to the Model Law for its domestic arbitration enactment. China and Taiwan have also included some important principles of this UNCITRAL Model Law in their domestic arbitration laws. The chart below shows some of the states which adopted the UNCITRAL Model Law and when they adopted it.

GROUNDS FOR APPEAL CHALLENGING ARBITRATION

Article 13(3) of UNCITRAL Model Law provides the provision for “Challenge Appeal Mechanism”. It provides the procedure for a person who challenges an arbitrator's decision or the decision of the Arbitral Tribunal or any other authority. The very purpose of this challenge appeal mechanism is to provide the right of judicial review to a person immediately after the denial of a challenge to avoid any controversy or problem that may arise as an outcome of having a challenged arbitrator conducting an arbitration. The UNCITRAL Model Law sets out certain deficiencies that are present in the appellate procedure and these deficiencies are:

1. Although under the “appeal challenge mechanism” (Appeal Challenge Mechanism), it is provided that the party must appeal for challenging of the decision of the arbitral tribunal within 30 days, but the judicial review process of courts for challenging decisions is unregulated and takes a long time to resolve. So, the ultimate aim of speedy resolution fails in such cases of challenging appeals;

2. Additionally, it also prevents the courts from correcting the erroneously sustained challenges even though there is a greater need for these courts to act as a safety instrument at this stage rather than in situations where the challenge has been rejected; and

3. This Appeal Challenge Mechanism also breaches the principle of equality as it provides unequal rights to the parties to seek judicial review of challenging decisions.

Although, there are certain deficiencies in this Appeal Challenge Mechanism of the UNCITRAL model law still this mechanism is considered superfluous in both ad-hoc and administered proceedings where a party can have a challenged decision reviewed by the courts and can seek relief for setting aside the awards or to resist the enforcement of such awards which are an outcome of the challenged decisions. This mechanism also gives the right to the parties to have such arbitrators removed by the courts. So, this Appeal Challenge Mechanism retains the power of the judicial review of the challenged decisions in certain circumstances.

ENFORCEMENT OF AWARD

Article 35 of the UNCITRAL Model Law deals with the provisions of enforcement of an award. In case the parties agree to the decision of arbitrators then the arbitral award which is the outcome of arbitration proceedings shall be enforced subject to the provisions of Article 36. This award irrespective of the country in which it is made is recognized as binding. The party shall upon the application in writing to the competent court can get this award enforced. In case the party fails to comply with the award then another party can seek to have the award recognized and enforced in its native courts. Such an award passed under the UNCITRAL Model Law is governed by the laws and legislation of the place of arbitration and the applicable treaties, if any. When such an award is made, the Secretary General authenticates it and deposits the original award in the safe and transmits the certified copies to the relevant parties.

PROBLEMS FACED WHILE ADOPTING THE MODEL LAW

Certain problems are faced while adopting the UNCITRAL Model Law these are because of:

1. Ambiguous and non-fixed definitions given the UNCITRAL Model Law. As this is a soft law regime, the definitions under it are given different interpretations by different domestic courts which creates ambiguity over the rules and regulations mentioned under it;

2. It also provides certain provisions which are difficult to take into practice. The Appeal Challenge Mechanism states that the challenge to decisions should be judicially reviewed within 30 days which is practically impossible given the backlog of thousands of pending cases;

3. As this law is not mandatory so many states don't find it serious and avoid its adaptation and instead states work under their domestic regulations;

4. Also, as the UNCITRAL Model Law is only applicable to international commercial arbitration and limits its extension to other disputes which are non-commercial ones, different states find it inadequate due to its limited scope.

Therefore, there are states which have avoided adopting the UNCITRAL Model Law because of the above given reasons.

CONCLUSION

Having gone through the problems and the features of UNCITRAL Model Law, it can be concluded that although this law is not completely ideal, yet provides a uniform path to the nations in order to achieve a better mechanism of alternative dispute resolution. This UNCITRAL Model Law has helped nations to adopt a uniform set of rules in cases of international commercial disputes rather than just fussing over the domestic laws of each party nation. So, this UNCITRAL Model Law along with the New York Convention For enforcement of arbitral awards can be a great relief and the most suitable way of resolving international commercial disputes.

The Author, Mayank Jain, is a 4th Year student from Gitarattan International Business School, Delhi.