International Commercial Arbitration

International Commercial Arbitration

With the significant expansion of international trade, merchants and parties to international commercial transactions increasingly prefer to submit their disputes to arbitration to avoid complex, time-consuming legal proceedings. Failure to employ efficient, expeditious dispute-resolution mechanisms may result in substantial adverse consequences for the parties involved.

In practice, international traders prefer resolving disputes on the basis of mutually agreed legal and commercial principles. As a result, arbitration has become the preferred method of dispute resolution in international commerce, creating an inseparable link between international trade and arbitration.

Characteristics and Legal Framework of International Arbitration

Some legal scholars define arbitration as the referral of a dispute to a third party agreed upon by the disputing parties, whose decision resolves the dispute. In this sense, arbitration is a technical mechanism for resolving disputes arising from legal relationships between individuals before a neutral arbitrator. Arbitrators derive their authority from a private agreement and issue decisions within that framework. Other scholars describe arbitration as a method of dispute resolution administered by a non-judicial authority that does not follow formal judicial procedures.

International commercial arbitration is defined by two essential elements, namely its commercial nature and its international character. Accordingly, international commercial arbitration is the resolution of disputes arising from international commercial relationships by one or more arbitrators.

Under the Law on International Commercial Arbitration, arbitration is considered international when at least one party to the arbitration agreement is not an Iranian national at the time the agreement is concluded. Such arbitration applies to disputes arising from international commercial relationships, including transportation, sale of goods, provision of services, financial transactions, technical cooperation, consultancy services, insurance, investment, agency, commission arrangements, contracting, and similar activities, in accordance with the provisions of the said law.

Types of International Commercial Arbitration

Based on the foregoing definitions, international commercial arbitration is divided into two main categories: ad hoc arbitration and institutional arbitration.

• Ad Hoc Arbitration: In ad hoc arbitration, no permanent institution or organization is designated to administer or supervise the arbitration. The procedural rules are determined by the parties themselves through the establishment of a specific arbitration arrangement. Once the dispute is resolved and the arbitral award is issued, the arbitration proceedings are terminated. Ad hoc arbitration is established to resolve a specific dispute, and the mandate of the arbitrators ends upon issuance of the award. The Iran-United States Claims Tribunal is an example of ad hoc arbitration.
• Institutional Arbitration: Institutional arbitration is conducted under the supervision of a specific arbitral institution or organization. In this type of arbitration, dispute resolution takes place within a predefined procedural framework and contractual structure, under which specific rights and obligations are established for both the arbitrators and the parties.

Advantages of International Commercial Arbitration

International commercial arbitration, similar to domestic arbitration, offers several advantages, including the following:

• Selection of arbitrators trusted by the parties.
• The binding nature of arbitral awards.
• Confidentiality of proceedings.
• Speed and efficiency in dispute resolution.
• Relative ease of enforcement compared to court judgments.
• Single-stage adjudication process.

Challenging an International Arbitral Award

Unlike domestic arbitration, in international arbitration, parties have 30 days from the date of notification of the award to request interpretation, correction, or completion of the award. The arbitrator has thirty days to correct or interpret the award and sixty days to complete it.

Pursuant to Article 32 of the Law on International Commercial Arbitration, the parties must submit their request within thirty days from the date of notification of the award and provide a copy of the request to the opposing party. The arbitrator’s time limit for correcting the award is thirty days from receipt of the request.

If the arbitrator identifies an ambiguity or error on their own initiative, the time limit is calculated from the date the award is issued.

Circumstances in Which an Arbitral Award Is Invalid

An arbitral award is invalid if the subject matter of the dispute is not capable of settlement by arbitration under Iranian law.

An arbitral award is also invalid if its content is contrary to public order, mandatory legal rules, or principles of morality.

Frequently Asked Questions Regarding International Commercial Arbitration