International Commercial Arbitration: When is this Dispute Resolution Mechanism employed?

International Commercial Arbitration

The international commercial arbitration system stands out as one of the best forms of dispute resolution. While the local courts have a significant role to play in ensuring that all arbitral awards are enforced, the system in its own right gives investors the confidence to invest in host states. It is the soul of global business opportunities. It gives the most powerful and weakest business entities the same neutral and fair playing ground to establish economic relationships bound by legal respect and consequences.

However, it is essential to note that the international commercial arbitration dispute resolution system is more suited for certain areas than others. There are limits to where the system can cover, and knowing them can be very helpful, especially if you are learning about how the system works.

When Can International Commercial Arbitration Be Employed?

Economic Dispute

International Commercial Arbitration is excellent in many ways and will continue to stand out over time. However, its relevance is in the economic sector at the international level. International Commercial Arbitration can only work as an effective dispute resolution mechanism when used for business disputes. And there must be an arbitral clause to guide and validate its use unless it will not be possible.

International Commercial Arbitration cannot be employed for different businesses that are locally owned and based in the same state. At least one of the major owners of the business or investments must be from a different state and have an arbitral clause set up for international commercial arbitration to stand.

Apart from the fact that international commercial arbitration is designed for international economic disputes, there are certain areas where it is dominant. And they will be outlined below

State Investors Dispute

International Commercial Arbitration is popular for its importance in resolving investor and state disputes. Investors-state disputes Are not unusual and usually account for up to 40% of international commercial arbitration hearings annually.

It is common for foreign investors to see investment potential in any country globally. And if they take the step to set up businesses in one, they will have to make a deal with the state government. Usually, the investors will seek government protection and set up an arbitral clause that limits the government from causing it financial damage either directly or indirectly.

Anytime the government goes against the agreement, the investor has the leverage of seeking an international commercial arbitration method of resolving the dispute. The main purpose of the hearing system is to gain justice and possible compensation for any financial loss or delay incurred due to the government or state default.

Using the law court against a government can be very tricky as history has shown that most state courts will often favor the government for the purpose of Goodwill. Hence international commercial arbitration is the best solution to choose.

Multinational Foreign Companies

Apart from Investor-state disputes, intentional commercial arbitration is also effective when two foreign companies get into a business contract and have an arbitral clause set up. These companies can employ the system when either of them believes they have been aggrieved or there was a breach of the contract.

International business organization disputes are a prevalent feature globally, and this trend has only increased following the COVID-19 lockdown and other climate issues. As long as an arbitral clause is set up, companies can resolve their disputes with international commercial arbitration hearings. The good thing is that the companies get to choose their own rules.

State-State Economic Businesses

The state-to-state economic business contracts can also employ international commercial arbitration for their benefit. This type of contract involves two states’ governments that come together to ensure symbiotic development through business development. As long as the contract is motivated by state growth and profit generation, an arbitral clause is very valid and will always work.

The arbitral clause can come very handy when either state believes that there has been a breach of the contract and compensation can be granted if the tribunal finds plausible evidence of these breaches.

State disputes are not very common, but they happen, and an arbitration institution or tribunal can be a good alternative to sort out the dispute. The law court is not a plausible idea for state economic disputes as both Governments will be extremely influential in creating a bias if either of their state courts is used.

Why is International Commercial Arbitration preferred?

There are several reasons why international commercial arbitration is a standout tool for international economic disputes, and they include

The Laws

The major law that makes international commercial arbitration a global dispute resolution is the New York Convention of 1958. This law which emphasizes the need for legal reciprocity between arbitrating member states, gives the system an edge over the law court.

The UNCITRAL Model Law is another important law that bound many arbitrating members together. It provides all member states with the legal template on which to create a harmonized system and pattern of resolving disputes.

The laws also outline every other factor that makes the international commercial arbitration system stand out.


International Commercial Arbitration is well known for its neutral nature and fairness. The tribunal is usually a fair ground to hear all disputing parties, and awards are given on the basis of incurred damages and merits. This means that even the less influential parties can have an award in their favor against a more influential respondent.


International Commercial Arbitration is the most viable dispute resolution system for international economic disputes. Its laws, models, and independence make it preferable to other forms of alternative dispute resolution mechanisms.

However, there are areas where the system can be employed, and as can be seen, it is best suited for economic and business disputes that employ a good viable arbitral clause in their contract. This means that international commercial arbitration can only work when a good contract is set up.

To get a good contract, it is imperative to use professional arbitrators or arbitral tribunals who have handled different economic disputes through arbitration. Rättsakuten is one of the best firms to get expert arbitrators with unrivaled experience in drafting favorable contracts that give their clients the edge. You can reach the company for all your inquiries and professional counsel.

Fredrik Jörgensen

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