1. Introduction

Unlike the International Court of Justice, arbitration between the states existed for many centuries and numerous examples of arbitration are provided by the history of the ancient Greece. It was also practiced “in China, among the Arabian tribes, in the early Islamic world, in maritime customary law in medieval Europe and in Papal practice.”

The foundational basis of arbitration is the idea that a quarrel between the states can be more easily resolved if a third neutral party is entrusted with the power to make the binding decision on the dispute, upon hearing both parties and with a goal of trying to arrive to a compromise acceptable to both parties to arbitration.

This overarching paradigm still holds true today. The purpose of this paper will be to analyse the basic features of the interstate arbitration, compare the system of interstate arbitration with the dispute resolution system available at the International Court of Justice (“ICJ”) and discuss the question of when the states will tend to prefer the arbitration process to the adjudication of the matter at the ICJ.

2. Interstate Arbitration v. Dispute Settlement at the ICJ

It shall be stated at the outset that many traditionally cited advantages of arbitrations, such as costs and speed, do not always materialise in practice. Likewise, it is not true that states will always prefer arbitration to the adjudication by the ICJ. This decision rests on a number of factors, and depending on the circumstances of the case and the end goals the parties to a dispute are trying to achieve, it may be preferable and advisable for the state to resort either to arbitration or to submit its case to the ICJ.

2.1 Arbitration

Arbitration can be defined as “the submission of a dispute to a judge or judges, in principle chosen by the parties, who agree to accept and respect the judgment.” The binding nature of the arbitration award is the key to the arbitration’s success and put arbitration on equal footing with judicial adjudication in terms of execution.

For example, at the end of the American Civil War, the United States and the Great Britain submitted to arbitration their dispute over the alleged breaches of neutrality by the UK during the war. The parties agreed upon the procedure to govern the proceeding and the five-member panel consisting of the nominees of the parties and the nominees of the three neutral states. The panel’s award “ordered the United Kingdom to pay compensation, which award was duly complied with.”

At the time when there was no dispute settlement alternatives and the only available means to settling the disputes was the war, the successful and peaceful arbitration between the US and UK “served as a demonstration of the effectiveness of arbitration”. This also produced a number of developments, which today are at the core of the international dispute settlement, such as arbitration clauses in the treaties, international agreements on arbitration, building a body of arbitration law to simplify the task for the parties to decide upon the procedures applicable to their arbitration, as well as work on the creation of a permanent tribunal for arbitration. These reforms culminated in passing of The Hague Convention for the Pacific Settlement of International Disputes 1899 and the creation of the Permanent Court of Arbitration (“PCA”).

The name itself is a misnomer as the body “is not a court, but a permanent facility […] available to states and international organisations to help them conduct arbitrations”. The arbitration costs, which “are less than those of other arbitrations” are paid by the parties to arbitration.

The authority for arbitration is also provided by Article 33 of the United Nations (“UN”) Charter, which lists arbitration as one of the dispute resolution methods, together with negotiation, mediation, conciliation, judicial settlement and some other means.

2.2 International Court of Justice

The ICJ came into existence as a result of the massive restructure of the international legal order following the World War II. The ICJ is a subset of the United Nations (“UN”) system, “and the Statute of the Court is in an integral part of the UN Charter (Article 92 of the Charter).”

The creation of the ICJ vividly exemplifies the limitations of arbitration, which are discussed below and aimed at filling the gaps in interstate dispute resolution which could not be filled by international arbitration. By setting up the international legal body entrusted with adjudicating the disputes between the states, the international community created an independent international judicial forum which does not depend on the agreement between the parties to adjudicate – any UN state may submit the case to the Court and the respondent state has no choice but to accept jurisdiction.

Proceedings at the Court do not prohibit parties from negotiation. There are no penalties for starting the case and then agreeing to a settlement – “at any stage of the proceedings the parties may inform the Court that they have arrived at an agreement, and the Court or its President will then make an Order for the removal of the case from the Court’s List.”

2.3 When Arbitration is Preferable

One of the major advantages of arbitration over the judicial settlement “Since the very existence of an international arbitral tribunal results from the will of the parties, it is not surprising that those parties should have a large say in the drawing up of its rules of procedure.”

“Arbitration is not necessarily cheaper or less complicated than judicial settlement. But the parties are better able to control the process (choice of arbitrators, language(s) and confidentiality). If they want a quick decision they can more easily direct the tribunal to finish by a specific date. This is helped by the fact that, even with five arbitrators, reaching a decision should be that much easier than with, say, the fifteen judges of the ICJ.”

“But, such advantages have to be weighed against the fact that all the costs of the arbitrators, the registrar, other staff and accommodation have to be borne by the parties (normally in equal shares whatever the outcome), in addition to their own legal costs. And, since the arbitral tribunal has to be constituted for each case and its rules of procedure may well have to be agreed, the mere setting up of the tribunal can take many months.”

“It is often said that the nature of the arbitration process is such that the result is usually a compromise. That may be so, but it would seem from some of their recent judgments that the ICJ judges, not surprisingly, also reach compromises.”

Unlike the arbitration proceedings, “the delivery of a judgment by the ICJ is given maximum publicity. It takes place at a public sitting” and is read in public by the President of the Court. “The Registry prepares a brief press release for journalists and a detailed summary of the decision to be used by scholars and practitioners.” The huge advantage of arbitration is that this maximum publicity can be avoided.

“A mixed arbitral tribunal is so-called because it is established to deal with disputes that are not between two states, but between a corporation (and sometimes a natural person) and a foreign state (hence ‘mixed’). Their most distinguishing feature is that the state of nationality and the other state have agreed that a claim can be brought direct to the tribunal; thus there is no need for the state of nationality of the claimant to be involved. And, generally, local remedies do not have to be exhausted. ICSID and other tribunals dealing with investment disputes are the best known.”

2.4 When ICJ Proceedings are Preferable

“Being a permanent body, the Court has certain distinct advantages over arbitral tribunal. It is always available to hear cases, and the parties do not have to pay anything towards the costs of the Court, apart from what they pay anyway as part of their annual contribution to the UN budget.”

“Although the Court has been criticised for being leisurely, it probably takes no more time to dispose of a complex case (and most cases coming before the Court are complex) than would an arbitral tribunal, yet at much less direct cost to the parties.” It is observed that “the average duration of cases argued before the ICJ, from the institution of proceedings to the delivery of final judgment, has been only four years.” In some instances, judgments have been delivered within a year.

“Developing country litigants may also be able to have part of their legal costs met from a trust fund administered by the UN Secretary-General, if the dispute is submitted to the Court by compromise.”

“The scope of the jurisdictional competence of the Court should be known in advance, as well as its procedure and practice. Moreover, since the Court has built up a huge body of jurisprudence, and the judges serve for nine year, renewable terms, states and their advisers may be somewhat better able to predict how it may deal with a case.”

“Those appointed by each party be able to explain further their state’s position, and be able to share what may be a considerable workload. Although it may be more common to have only three arbitrators (as in the Iran-US Claims Tribunal) this is not ideal since the chairman then needs the support of one of the two national arbitrators in order to reach a decision. He may therefore have to compromise, whereas three neutral arbitrators should be better able to reach an impartial decision.”

Institution of the Court proceedings may oftentimes be the only means of making the other party to enter into the negotiations. With the prospect of the binding Court’s judgment, the parties to a dispute may be more willing to talk and enter into the discussions. For example, after the initiation of the Court proceedings, settlements were reached in a number of cases.

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