An Introduction to Commercial Arbitration

• Author: Anthon y Daimsis & Marina Pavlovic
• Pages: 3-39

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chapter one

An Introduction to Commercial

Arbitration

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A. PRELIMINARY REMARKS

As the world becomes ever more interconnected, states, state in-

stitutions, and international organizations increasingly rely on

arbitration to resolve their disputes.1 A question that is often

asked is, why choose arbitration over the courts? The answer is

entirely subjective. What is good and advantageous for one party

is not always relevant to another. In an international context,

where parties’ domestic court systems may dier signicant-

ly, international arbitration is seen as a better alternative to the

courts because it allows each party to avoid appearing and litigat-

ing before the other side’s home court. By choosing arbitration,

the parties maintain the decision maker’s neutrality. If this is im-

portant to the parties, then it is easy to answer that arbitration is

better than the courts, at least for parties that prioritize the neu-

trality of a dispute’s forum.2

1 See Karl-Heinz Böckstiegel, “The Role of Arbitration within Today’s Challen-

ges to the World Community and to International Law” (2006) 22:2 Arbitra-

tion International 165, online: https://doi.org/10.1093/arbitration/22.2.165.

2 See Jan Paulsson, “International Arbitration Is Not Arbitration” (2008) 2

Stockholm International Arbitration Review 1.

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Another reason to prefer arbitration to the courts, both do-

mestically and internationally, is that it allows parties a great deal

of freedom to craft and tailor the process. Private arbitration par-

allels this freedom by allowing parties to select the very rules and

laws that govern the resolution of their disputes. Perhaps even

more striking is that parties also play a hand in choosing who will

resolve their disputes. This stands in stark contrast to most na-

tional court systems, where parties rarely select their judges or

decide the framework of laws applicable to their disputes.

This chapter will introduce the reader to arbitration’s basic

mechanics. Subsequent chapters pick up various discrete topics

and handle them in greater depth. Readers who are new to arbi-

tration will benet from this chapter as it lays down the basic

legal framework and introduces some critical theories unique

to arbitration. But even the readers who are more familiar with

arbitration may benet from a refresher on where arbitration sits

within the Canadian legal landscape and internationally.

This chapter is divided into four main sections, below. The rst

sets arbitration within the broader dispute resolution system. The

second introduces arbitration’s legal framework in Canada both

from a domestic and from an international perspective. Distinc-

tions are drawn, where necessary, between legislation governing

domestic arbitration and legislation governing international arbi-

tration. Additionally, international arbitration requires an under-

standing of two signicant legal instruments on international

commercial arbitration: the United Nations Convention on the Rec-

ognition and Enforcement of Foreign Arbitral Awards (the New York Con-

vention)3 and the UNCITRAL Model Law on International Commercial

Arbitration.4 These two legal instruments and their accompanying

travaux préparatoires are vital sources in international commercial

3 10 June 1958, 330 UNTS 3, online: www.uncitral.org/pdf/english/texts/

arbitration/NY-conv/New-York-Convention-E.pdf.

4 21 June 1985, UN Doc A/40/17, annex 1 [1985 UNCITRAL Model Law], with

amendments adopted 7 July 2006, UN Doc A/61/17, annex 1, online: www.

uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf

[UNCITRAL Model Law].

An Introduction to Commercial Arbitration

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arbitration.5 More importantly, these two legal instruments are

critical to understanding the Canadian legal framework for inter-

national commercial arbitration as the New York Convention and

the UNCITRAL Model Law, through adoption and implementation,

structure Canada’s international commercial arbitration legis-

lation. Internationally, these instruments are also the foundation

for many modern legislative enactments on international com-

mercial arbitration.6 Consequently, any discussion of arbitration

is incomplete without reference to these legal instruments.

The third main section, below, considers some foundational

theories unique to arbitration, such as why an arbitration agree-

ment is often treated as a separate agreement and why arbitrators

retain competence to determine their own jurisdiction. This last

point often shocks newcomers, but we expect that once under-

stood, the reader will appreciate its purpose and its necessity to

the arbitration system.

The fourth section briey explains the processes that come

into play during arbitration. For example, this section explains

5 Although travaux préparatoires do not constitute a primary interpretive

source, in Thomson v Thomson, [1994] 3 SCR 551 at para 40, La Forest J for

the majority of the Supreme Court of Canada wrote that it “would be

odd if in construing an international treaty to which the legislature has

attempted to give eect, the treaty were not interpreted in the manner in

which the state parties to the treaty must have intended. Not surprisingly,

then, the parties made frequent references to this supplementary means

of interpreting the Convention, and I shall also do so.” In almost every

instance where Canadian legislators have implemented the New York Con-

vention and the UNCITRAL Model Law, specic reference to relevant travaux

préparatoires has been made. And while many of these references are only

to the UNCITRAL Model Law’s 18th session of the commission, as argued

by Binder, “a thorough understanding of the issues surrounding the Model

Law can only be obtained by an analysis of all major documents published

during the drafting . . . .” [emphasis in original] in Peter Binder, Internation-

al Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdic-

tions, 2d ed (London, Sweet & Maxwell, 2005).

6 According to the United Nations Commission on International Trade

Law, the UNCITRAL Model Law has been adopted or used to fashion inter-

national commercial arbitration legislation in over 60 jurisdictions. At the

time of writing, there are 157 parties to the New York Convention.