Chapter 1: Essential elements of legal systems

Chapter learning objectives

Upon completion of this chapter you will be able to:

  • explain the interrelationship of economic, political and legal systems
  • explain the separation of powers and its impact on the legal system
  • explain the different types and systems of law
  • explain the distinction between civil and criminal law
  • explain the operation of common, civil and Sharia law
  • explain the distinction between public and private international law
  • explain the need for international regulation in the context of conflict of laws
  • explain the function of international treaties, conventions and model codes
  • explain the roles of international organisations, UN, ICC, WTO, COE, OECD, UNIDROIT, etc. and the courts in the regulation of international trade
  • explain the operation, and evaluate the distinct merits, of court-based adjudication and arbitration as a means of settling civil disputes
  • explain and apply the provisions of the UNCITRAL Model Law on International Commercial Arbitration.

1 Economic, political and legal systems

The inter-relationship between economic, political and legal systems

A country's political economy refers to its political, economic and legal systems.

These systems are interdependent, and interact and influence eachother. The political and economic system of a country will be influencedby it's legal system and will have implications for the practice ofinternational business.

Economic systems

A country's economic policy decides how that society financesitself, that is, what it produces, how it produces it and for whom.

There are three main types of economic system:

  • Planned – where decisions and choices are made by the government, e.g. how natural resources in the country are to be used and what prices should be paid for them.
  • Market – where decisions and choices are left to market forces of supply and demand, e.g. the price is set by how much will be paid for the resources and how much of it is needed. If a particular resource is easily obtainable, the price will usually be lower. The reverse is also true – if a particular resource is rare, the price will usually be high.
  • Mixed – which is a mixture of the two types above (in practice, most countries have a mixed economy, and what makes the difference is the proportion between market forces and planned economy in that country).

Test your understanding 1

Define a planned economy.

Political systems

Politics refers to how countries are managed.

A country might be run by a dictator (political system: a dictatorship) and individual freedom might be heavily regulated.

In contrast, a country might be run by an elected body (politicalsystem: democracy) and individuals may be more free to regulate theirown lives, still being subject to an overall body of law made by theelected government.

The nature of the political system:

  • affects the way that laws are made
  • affects the way that economies are run.

Test your understanding 2

What is democracy?

Legal systems

Law is the body of rules that exists in a society, under which its members operate.

Law is therefore:

  • usually understood in 'local' rather than 'global' terms
  • historically in writing as societies changed from tribal/family government to nation states
  • often outlined in basic terms in a country's constitution
  • made by the people governing the country.

There are three broad 'types' of legal system which operate in the world:

  • common law (e.g. in the UK and the US)
  • civil law (e.g. in France and Germany)
  • Sharia law (for example, in Pakistan and Iran).

These will be looked at in more detail later in this chapter.

Many countries in the world have a constitution setting out itscitizens' basic legal rights. For example, the US has a writtenconstitution.

Increasingly, countries are trading internationally.

  • This can cause problems where legal, economic and political systems are so different as to make agreeing terms between the parties difficult.
  • This has led to an increasing interest in creating 'international' law, particularly with regard to international commercial transactions, which is what this syllabus focuses on.

Test your understanding 3

Define law.

Separation of powers

Separation of powers is the ancient constitutional principle thatdifferent 'powers' involved in the government of a state should beseparate from one another. The fear was that if two or more 'powers' inthe same state get into the same hands, then they are likely to rule astyrants. Many modern dictators bear out this observation. The concept isunderstood in various ways. Modern thinking analyses the 'powers' ofgovernment as being three: a legislature to make the law, and executiveto implement it, and a judiciary to interpret it in cases of dispute.What varies is how (if at all) the principle is applied – are theorganisations involved to be separate, the personnel different in each'power', no organisation to be able to control another – or somecombination of those.

The US constitution was designed with separation of powers in mind.Thus, the President (in charge of the executive limb of theconstitution) may not be a member of Congress (the legislature).However, the US also has an intricate system of 'checks and balances' tolink the 'powers' together and keep them accountable to each other – sothat one tyrant will not merely be replaced by three. For example,although the US Supreme Court (the most senior judicial body) maydeclare laws made by the US Congress to be invalid, the members of thatCourt are chosen by the President, subject to the approval of the senior(upper) chamber of Congress, which is called the Senate.

The UK has what is often called an unwritten constitution: its keyrules have never been formally collected together into one enactment.The UK constitution has evolved over centuries, rather than ever been'designed,' and so it does not reflect this criterion. On the one hand,it is a basic principle that – contrary to the theory of separation ofpowers – the most senior members of the executive are chosen from thelegislature. This is known as the 'Westminster Model' and has beencopied extensively worldwide: it is seen as promoting the executive'sresponsibility to the legislature and so the people that they represent.On the other hand, Her Majesty the Queen as Monarch has potentiallysignificant powers of a legislative (calling elections), executive(appointing ministers) and judicial (pardoning criminals) nature.

These powers are now considered, briefly, in turn as they relate to the law.

The legislature:

  • is the primary law maker in a state
  • will usually indicate if a state is to be considered democratic or not by whether its membership is wholly or substantially elected
  • may either have unlimited law-making power (in which case it is called 'sovereign' or 'supreme') or be subject to legal limits on its power ('subordinate') – limits that are often imposed by that state's written constitution. Those limits (if any) are often enforced by that state's judiciary, who may be given power to declare invalid laws made by the legislature that are inconsistent with those limits.

One of the key rules of UK unwritten constitution is that the UKParliament is sovereign. The courts (that is, the judiciary) have nopower to declare its law to be invalid: if a law made by Parliament isflawed, then it is for Parliament to put the matter right. It would beseen as unconstitutional (an abuse of separation of powers) for a UKcourt to criticise the soundness of an Act of Parliament. The nearestthat a court can go is to declare an Act to be incompatible with theEuropean Convention on Human Rights. However, that is not often done,has no effect on the validity of the legislation in question, and was inturn authorised by another Act of Parliament, the Human Rights Act1998: whether the law in question is to be changed remains a matter forParliament.

The executive:

  • implements the law (that is, brings it into effect)
  • is usually the numerically largest of the 'powers', consisting of central and local government, the civil service, government ministers, the police, the armed forces, the tax authorities, etc.
  • in states that seek fully to practise separation of powers (such as France or the US, in different ways), will be largely independent of the legislature and the judiciary. In states that follow the Westminster Model (see above) it will by contrast be a constitutional requirement that the leading members of the executive be chosen from and accountable to the legislature.

The separation of powers allows for the legislature and theexecutive, which may be expected to function semi-independently of eachother, to be elected individually. That will be especially likely tohappen if they are controlled by different political parties. Under theWestminster Model, there is more likely to be only one set of elections,which chooses the legislature and the executive at the same time, andso gives the new government both the power and the duty (called thedoctrine of mandate) to enact as laws the promises and policies thatthey made in their successful election manifesto.

The judiciary:

  • decides authoritatively questions that arise about what is the law of that state, and about its application to particular cases. Judicial activity may be classified as criminal – matters between state and citizen concerned with punishing those guilty of crime – or civil – matters between citizens usually about compensation for loss of some kind.
  • is usually wholly or largely outside the legislative process. Where the legislature is not sovereign, the judiciary may well have power to declare unconstitutional (or otherwise legally unsound) laws made by it to be invalid. This may be the role of all the courts or just one or more specialist courts.
  • in a common law legal system like that of the UK of the USA, i.e. one where the law is found in many, many case decisions of the courts – there will be a further important function of the judiciary: it will be their function to interpret the law, and (usually) to lay down authoritative rulings (called precedent) about what is the law. In a civil law legal system like that of France, the law is instead to be found in a comprehensive code (a very long enactment), and it will be said that the judiciary do not need to interpret the code, they just apply it.
  • in both common law and civil law systems courts exercise limited control over the actions of public bodies by way of a judicial review. The review usually takes place at the instance of an individual whose rights have been infringed by the public body and who claims that that public body acted either illegally or ultra vires – outside their powers. Judicial review applications are heard by the Queens Bench Division of the High Court. On application, the court will not determine whether any individual decision of the public body was correct on its merits. It will only determine whether that public body had the authority to make such a decision and whether the decision was taken according to proper procedures. If the courts determine that the decision was taken by a body that did not have the appropriate authority or proper procedures were not followed, it will quash the decision and will ask the relevant public body to reconsider the decision on its merits.

Test your understanding 4

Define the function of the legislature.

Test your understanding 5

Explain the concept of separation of powers.

2 Different legal systems

Types of law

Each country has it's own set of national laws which regulate howentities relate to each other and to the state. International law on theother hand reflects the interrelationship of states and will seek toresolve problems where there is a conflict of national laws.

Each country will also distinguish between civil and criminal law.Civil law is covered in further detail later on in this chapter.

Criminal law

Criminal law relates to conduct which the State disapproves of. The purpose of criminal law is the enforcement of particular forms of behaviour by the State, which acts to ensure compliance.

In a criminal case the burden of proof rests with the prosecution (the State) which must prove the accused is guilty beyond reasonable doubt.

In the UK a case would be referred to as R v Brown. This means thatthe prosecution is brought in the name of the Crown and 'R' stands for'Regina' which is latin for queen.

If found guilty, the criminal court will sentence the accused andit may fine him or impose a period of imprisonment. If innocent, theaccused will be acquitted.

Conflicts of laws

A conflict of laws occurs when parties from different legaljurisdictions interact and trade with each other and their respectivelegal rules conflict.

This is where international law steps in and will regulate therelationship between the parties and their rights and duties towards oneanother.

Sources of international law

International law is derived from various sources:

  • International treaties and conventions
  • International custom
  • The general principles of law

Common law

Common law derives from the body of law built up in England between1066AD and 1400AD. It has been exported to various countries, notablythe USA.

Key principles of common law:

  • Principles of law do not become inoperative through lapse of time (therefore a principle applied in a court case of 1066AD may be relevant to a case today).
  • New laws developed by the legislature are presumed not to alter the existing law (unless they state that they do so).
  • Judges apply the law and must apply decisions reached in previous cases subject to certain conditions, e.g. that there is no material difference between the cases in question. This is the doctrine of judicial precedent, which is an important concept in common law.

Sources of law in common law systems:

  • Common law: the body of law referred to above, which has evolved through the application of the doctrine of judicial precedent.
  • Equity: the system of rules developed by Chancery to overcome the perceived rigidity of common law.
  • Statute: law made by the legislature.
  • Delegated legislation
  • Custom (historic law): customs still plays a part in commercial transactions.
  • The constitution: in common law countries that have a constitution.
  • European Community (EC) law: in all countries that are also part of the European Community, such as the UK. Many European Union countries have a civil system.

Legislation and delegated legislation

Legislation is the law created by the Parliament as the highestsovereign law making body in the UK. UK Parliament consists of the Houseof Commons and the House of Lords. For any Act to be enacted the Bill(proposed Act) must be approved by the House of Commons, House of Lordsand a Royal Assent by Her Majesty the Queen must be given.

Acts may be passed to:

(1)Create a new law

(2)Authorise taxation

(3)Codify existing law

(4)Consolidate existing statute

(5)Overrule an existing precedent.

The process of enacting Acts of Parliament is very time consumingand burdensome. It would not be possible to regulate every legal aspectby an Act of Parliament or considered every minute detail of eachrelevant section. To facilitate law making process and to saveParliamentary time, the Parliament is able to authorise another body toenact secondary legislation. This type is usually called delegated orsecondary legislation. This means that the legislation is done on behalfof the Parliament.

There are many types of delegated legislation:

(1)Orders in Council – it permitsthe government, through the Privy Council to enact new law. The PrivyCouncil is nominally a non party-political body of eminentparliamentarians. Orders in Council are usually used in times ofnational emergency, for example to mobilise the Armed Forces on theoutbreak of hostilities.

(2)Statutory Instruments – they are usually made by government ministers in which particular regulations are enacted.

(3)By-laws – they are made by localauthorities or other local bodies. The application of by-laws islimited to a specific geographic territory.

(4)Court Rule – made by Court RuleCommittees to govern the procedures in the particular courts under theSupreme Court Act 1981, the County Court Act 1984, and the Magistrates'Courts Act 1980.

(5)Professional regulations – madeby e.g. the Law Society under the Solicitors' Act 1974 to regulate andcontrol the conduct of practising solicitors.

The role of judges

The role of judges in common law systems is to:

  • apply the law consistently with previous decisions of judges unless there are valid reasons for overruling previous decisions.
  • interpret the statutes made by the legislative.
  • review the law to determine whether it conflicts with the overriding principles of law (for example the US Constitution). This is not a feature of a UK judicial role.

UK Courts and their hierarchy

The UK Court structure is divided into civil law courts and criminal law courts.

The Supreme Court (previously the House of Lords) – is thehighest appellate court in UK for both civil and criminal cases. Anyappeals from the Supreme Court can only be considered by the EuropeanCourt of Human Rights or the European Court of Justice.

On 1 October 2009 the House of Lords which was the highestappellate court in UK was replaced by a new Supreme Court as the highestcourt within the English Legal System. The reason for this goes back tothe separation of powers principle (see page 4). Before October2009 the highest court in the UK was located in the country's UpperHouse of Parliament and this was seen to contradict the separation ofpowers principle. Now that the Supreme Court sits separately this willemphasise the independence of the judges.

Court of Appeal – the second highest court in UK. It has twodivisions: criminal and civil. Appeals are normally considered in theCourt of Appeal before they can be heard in the Supreme Court. Civildivision hears appeals from the County Courts and the High Court ofJustice. Criminal division hears appeals from the Crown Court.

Doctrine of judicial precedent

The system adopted by the judges, of following the decisions in previous cases is called the doctrine of judicial precedent.

  • Some precedents are binding (meaning they must be followed in later cases).
  • Others are merely persuasive (meaning that a judge in a later case may choose to follow it but he is not bound to do so).

The application of consistency is the basis of judicial precedent, which has the following rules.

  • A precedent must be based on a proposition of law not of fact.
  • The facts of the case being considered must be materially the same as the case in which the precedent was laid down.
  • The previous court must have had the power to bind the court making the current decision (it must be a superior court).
  • In order for a precedent to be binding on a judge in a later case, the material facts of the two cases must be the same. If they are significantly different, the precedent will be persuasive rather than binding.
  • A precedent can be overruled by a higher court. Please note that since 1966 the House of Lords (Supreme Court since 1 October 2009) can overrule itself.

Statutory interpretation

The following presumptions about statute apply to how judges interpret it.

  • It does not override existing law unless that is stated.
  • It does not alter common law (so if two interpretations are possible, the one most in line with common law is preferable).
  • If it deprives a person of his property he is to be compensated.
  • It is not intended to deprive a person of his liberty, unless clear wording to that effect is used.
  • It does not have retrospective effect.
  • It does not bind the Crown.
  • It has effect only in the UK.
  • It cannot impose criminal liability without proof of guilty intention unless clear wording to that effect is used.
  • It does not repeal other statutes.
  • Omitted items are outside its scope.

The above presumptions may be rebutted by contrary evidence.

The following rules have been developed to help with statutory interpretation.

  • Words should be given their ordinary or literal meaning.
  • Words should be interpreted within their context.
  • Words should be interpreted according to the purpose of the statute.
  • If a list of specifics is given, followed by a list of more general words, the general words are to be restricted to things of the same kind as the specifics.
  • If one thing is specified, by implication another is excluded by a lack of mention.
  • A word draws meaning from the other words around it (for example, red letters and numbers means red letters and red numbers).
  • If a statute is one in a series, judges may look at the whole series to assist their interpretation.

Test your understanding 6

Define common law.

Test your understanding 7

Which of the following is not true of judicial precedent?

APrecedents must be based on points of law.

BPrecedents must be based on points of fact.

CPrecedents must have been made by a superior court.

DPrecedents can be overruled by a superior court. The Supreme Court can overrule itself.

Civil law

Civil law is the law historically developed from Roman law, based on codes of written law.

Principles of civil law:

  • Comprehensibility: law is contained in codes, which are drafted as general principles, which should answer any situation.
  • Certainty: derived from the above, questions of law should be decided predictably, in the context of the codes. Judges only have limited powers of interpretation.

Sources of law:

  • countries' constitutions.
  • (in EC members) EC law.
  • statute (much of which is codified, as noted above).
  • administrative regulations.
  • custom.

Role of judges:

  • The distinction between those who draft the law and those who apply it tends to be greater in civil law systems than can be the case in common law systems.
  • Judges apply the law.
  • Judges create precedents (in effect law) which must be followed by other judges.

Principles of judicial interpretation:

  • In general terms, judges are not supposed to interpret the law but apply it.
  • However, when some interpretation is required, judges are required to identify the social purpose of the law and apply it in a manner that ensures that purpose is enacted.
  • Also judges may look at the historic intention of the law and seek to apply it in the way that it would have been drafted to cover modern situations.

Illustration 1 – Different legal systems

There are a number of specific interpretational rules in France,such as that judges must follow the clear meaning of the law and notseek a different meaning. In addition, the law must be interpreted inaccordance with its spirit, not to its letter, when the meaning isambiguous.

Illustration 2 – Different legal systems

Certain common law countries have developed a systemwhereby the judiciary may decide whether any given statute isconstitutional.

Germany has constitutional courts which exist for this purpose.

Test your understanding 8

Give two examples of countries which have a civil law system.

Test your understanding 9

Judges in a civil law system are required to interpret the law.

True or false.

Test your understanding 10

Which of the following is a general principle of civil law?

AThe law is certain.

BJudges create law.

CStatutes are drafted in great detail.

DThere is no custom.

Common law and civil law distinguished

The differences between common law and civil law can be seen in the descriptions above.

  • Sources of law: In civil law, codes and statutes are supposed to be comprehensive. In common law, they are supplementary to the body of historic law created by judges.
  • Role of judges: In civil law, judges are required to apply the law, whereas in common law, they have a much more interpretative and creative role.

Illustration 3 – Different legal systems

Auguste is a judge in France. Alison is a judge in the UK. They arepresiding over cases which have similar facts. Auguste will refer tothe relevant code and apply the law as stated within that code. Alisonwill have to consider the relevance of statutory law to the case. Shewill also have to consider if there has been a similar case previouslydecided by a superior court and apply any decision of law made in thatcase to the present facts.

Test your understanding 11

Compare and contrast statutory interpretation in common law and civil law systems.

Sharia law

Sharia law is law based in the religion of Islam.

Principles of Sharia law:

  • Sharia is law given by Allah and is the divine way ordained for mankind.

Sources of Sharia law:

  • Quran: Allah's divine revelation to his prophet Mohammed.
  • Sunnah: record of what has come to be the acceptable course of conduct, derived from sayings of the prophet, known as Ahadith.
  • Madhab: schools of thought based on writings and thoughts of major historical jurists. There are broadly speaking two schools, the Sunni and the Shiite. The Sunnis form the majority, and the schools under the Sunnis can be further subdivided into the Hanafi School, the Maliki School, the Shafii School and the Hanbali School.'
  • Constitution of the country.

Role of judges:

  • Judges in Sharia law are generally clerics, given the religious nature of the law although some countries also have secular judges.
  • Judges are required to apply the law.
  • There are limited powers of interpretation, given that the law was ordained by Allah.

Interpretation of the law:

  • If clear guidance is not available in the Quran, a cleric may refer to the Sunnah to confirm, explain, or clarify the law.
  • If the Quran does not give guidance on a specific matter, the Sunnah may do so.
  • Within the Sunnah, Ahadith are classified according to their reliability: Muwatatir are virtually guaranteed, Mashtur are less certain and Ahads have little certainly about their reliability.
  • There is controversy in the Muslim world whether further interpretation of law may be required.
  • Taqlid is the theory that the law has been interpreted sufficiently and does not require further interpretation.
  • Ijtihad are the historic processes used for interpreting the law (the specific types of Ijtihad are: Ijma', Qiyas, Istihan, Maslahah mursalah, 'Urf, and Istishab).


  • Must not be carried out on certain matters (such as whether Allah exists).
  • Must be carried out by a suitably qualified person, known as a Muhtahid, who has studied the Quran and the traditions of the prophet, understands the principle of Ijma', understands the conditions for Qiyas and is a just, reliable, trustworthy and good practising Muslim.

Ijma' is a consensus of opinion of jurists

Qiyas is comparison of two things with a view to evaluating one in the light of the other.

Illustration 4 – Different legal systems

Because taking alcohol is forbidden by the Quran, the principle ofQiyas applies the same rule to matters which have a similar effect toalcohol, such as taking illegal drugs.

Istihan is the concept of equity or fairness, exercised within the bounds of what the Quran says.

Judicial review:

  • May exist in some Muslim countries to ensure that issued statutes are based on Sharia law principles.

Test your understanding 12

Define Sharia law.

Test your understanding 13

Judges have the power to interpret Sharia law.

True or false.

Test your understanding 14

Define Qiyas.

3 International trade, international legal regulation and conflict of laws

Public and private international law

Private international law is a set of national, domestic rules todetermine jurisdiction and applicable law in international contracts.Private international law, despite its name, is not an international law– it is purely domestic law. It also deals with the enforcement andrecognition of foreign judgments.

Public international law is law which is recognised by a group ofnations, such as Conventions and Treaties, international custom andgeneral principles of law recognised by civilised nations.

Illustration 5 – Public international law

In this syllabus, we shall look at various examples of publicinternational law, such as the UN Model Law on Arbitration or the UNConvention on Contracts for the International Sale of Goods (UNCCISG).

Test your understanding 15

Define public international law.

Test your understanding 16

Define private international law.

Conflict of laws and international legal regulation

Conflict of laws will arise where the law of two different countriesproduces different outcomes, making it difficult for parties in thosecountries to trade with one another.

Illustration 6 – Conflict of laws

This issue can be illustrated by thinking about the HSBCadvertisements run on television or when you arrive at London's HeathrowAirport. The point of these advertisements is that the same thing (e.g.the colour red) can mean very different things in two differentnations: e.g. in the UK red implies danger, in China it implies goodluck. A similar situation may exist with the law. In Country A,negotiations to a contract may form part of the contract, in Country B,only agreed and signed terms may be included.

Suppose Constance, in Country A, wants to buy some goods from Dimitri, in Country B.

If Constance were dealing with someone in Country A, she wouldenter into negotiations with him. When they had agreed the terms oftheir sale she would engage a solicitor to write up those terms, andthose terms would not become binding on either party until both hadsigned.

In Country B however, Dimitri is accustomed to less formality inrelation to contracts. He understands that once the parties have agreedthe terms, the terms are binding. So once negotiations with Constancehave been finalised, he makes and sends her the goods.

Constance finds an alternative supplier prepared to give her abetter deal than Dimitri before she has signed her contract with Dimitriand decides to contract with the alternative supplier instead. Then shereceives goods from Dimitri. She is surprised, because she does notbelieve she has a contract with Dimitri. He, however, expects her toaccept and pay for the goods.

Ultimately, if this situation were to be taken up in the courts ofeach nation, Country A (where Constance is) would say there was nocontract, so Constance does not have to accept or pay for the goods.Country B would say that there was a contract, and Constance has toaccept and pay for the goods. But Constance is not in Country B, so thejudgement against her cannot be enforced, and Dimitri loses out.

This is the problem of conflict of laws. Parties will not want totrade with one another when their laws and customs are different, andcould leave them exposed to loss.

Test your understanding 17

Define conflict of laws.

International treaties, conventions and model codes

Public international law arises out of the problem of conflict of laws.

  • Nations negotiate treaties and model codes so that parties can refer to that agreed code of conduct when carrying out international trade rather than their own domestic laws.
  • International bodies (which we will look at below) exist to help create, manage and amend those agreed international laws.

Illustration 7 – Public international law

Examples of public international law were given above. They includethe UN Model Law on Arbitration, the UNCCISG, the UN Model Law onInternational Credit Transfers, the UN Convention on International Billsof Exchange and International Promissory Notes.

Illustration 8 – Public international law

Various organisations are associated with international law, as weshall see below. However, as you can tell from the names of the modellaws listed above, a key organisation is the United Nations (UN).

Illustration 9 – Public international law

There are also various bodies involved in adjudicatinginternational law. For example, the International Chamber of Commerceset up the International Court of Arbitration.


UN Conventions are binding under international law on memberstates. The Rome Convention 1980 sets out policy on what law shouldgovern the validity of international contracts. It sets down theprinciple that if the parties have a written contract and have expressedpreference for a particular law in that contract, that law shouldgovern the contract.

The New York Convention 1958 sets out the agreement of countries relating to referring cases to arbitration.

4 International organisations

United Nations (UN)

The UN is a global body which has almost every country in the world as amember, which exists to maintain peace and security, develop friendlyrelations between nations, co-operate in solving economic, social,cultural and humanitarian problems and to promote respect for humanrights and international freedoms.

As you can see, the UN's remit is wider than international law. It has various legal departments, such as:

UNCITRAL is the legal body of the UN which has largely harmonised andunified public international law. It is formed of 61 states elected bythe UN general assembly and it has issued various model laws andconventions, including those mentioned above which are covered in thissyllabus.


  • was established in 1966 by the general assembly of the UN
  • has a general mandate to harmonise and unify the international law on trade
  • is composed of 60 member states elected by the general council
  • carries out work at annual session, which may be observed by any party.
  • has six working groups that conduct preparatory research work on topics in its programme
  • issues model laws and conventions relating to international trade as we have seen and will look at in more detail.

Test your understanding 18


International Chamber of Commerce (ICC)

The ICC is an organisation created by business leaders from variouscountries which aims to 'serve world business community by promotingtrade and investment, open markets for goods and services, and the freeflow of capital'.

The ICC:

  • has thousands of member companies and associations from 130 countries
  • co-operates with and advises the UN in formulating international law
  • provides practical services to businesses
  • seeks to combat commercial crime (such as money laundering)
  • has a website, which is
  • has a World Council, national committees and groups, International Secretariat.

The World Council:

  • consists of delegates of business executives from members of ICC nominated by national committees
  • elects the executive board, which is responsible for implementing ICC policy. It has between 15 and 30 members who serve for three years, with one-third retiring at the end of each year
  • elects the chairman and the vice-chairman of the board who make recommendations for the board to implement.

The national committees:

  • represent the ICC in their nation states
  • ensure that ICC takes account of their national business concerns in determining policy
  • elect a member to the World Council.

The Secretariat:

  • works closely with the national committees to carry out the ICC's work programme
  • is headed by a general secretary (currently Guy Sebban, from France).

Test your understanding 19

What is the ICC?

World Trade Organisation (WTO)

The WTO is an organisation which provides rules for the system ofinternational trade. It was formed in 1995 from the old GeneralAgreement on Tariffs and Trade (GATT) which had existed since 1948. TheWTO provides guidance on trade in goods, services, inventions, creationsand intellectual properties. It has 149 members, accounting for over97% of the world's trade.

The purposes of the WTO are to:

  • assist the free flow of trade by removing obstacles
  • publicise world trade rules
  • give individuals, companies and governments confidence that there will be no sudden changes of policy.

The WTO:

  • administers trade agreements
  • acts as a forum for trade negotiations
  • settles trade disputes
  • reviews national trade policies
  • assists developing countries in trade policy issues
  • cooperates with other international organisations
  • has a website (

The WTO's agreements:

  • include individual countries' commitments to lower customs tariffs and other trade barriers
  • set procedures for settling disputes (through the Dispute Settlement Body)
  • prescribe special treatments for developing countries
  • require governments to make trade policies transparent by frequent reporting to, and periodic scrutiny by, the WTO.

The structure of the WTO is:

  • a Secretariat based in Geneva, which supplies technical support for councils and committees
  • the Ministerial Conference, which is the top decision-making body and meets at least once every two years
  • the General Council, comprising ambassadors based in Geneva, but sometimes officials are sent from member countries which meets several times a year in Geneva
  • sub-councils, such as the Goods Council or the Services Council, which report to the general council
  • specialised committees and working groups.

Decisions of the WTO are taken:

  • by consensus generally (although a majority vote is permitted)
  • by the entire membership.

The General Council is also known as the Dispute Settlement Body when relevant. It has the authority to:

  • establish a panel of three or up to five experts from different countries to hear a case (chosen in consultation with the countries in dispute)
  • accept or reject the panel's findings
  • accept or reject (by consensus) an appeal on a point of law within 30 days
  • monitor the implementation of rulings and recommendations.

Appeals are heard by three members of the Appellate Body which:

  • is a permanent body
  • is made up of seven members who have to be individuals with recognised standing in the field of law and international trade and not affiliated with any government
  • can uphold, modify or reverse the original panel's findings.

Illustration 10 – International organisations

The country of Aredia has a dispute with the country of Banovia. Ithas been referred to a panel of three experts. The two countries indispute have agreed to the following members of the panel:

  • Carl, an expert from Dunvin.
  • Egor, an expert from Francia.
  • Gertrude, an expert from Hanu.

The panel delivers a verdict. However, Aredia is not happy with theverdict and so appeals. The appeal will be heard by three members ofthe Appellate Body. The Appellate Body modifies the verdict. The DisputeSettlement Body then confirms that Appellate Body's verdict. Aredia andBanovia are required to comply with the terms of the verdict, and theDispute Settlement Body monitors the implementation of the ruling.

Test your understanding 20

Idria and Jamelistan have a dispute which has been referred to apanel of WTO experts. The panel delivers a ruling, but Jamelistan is nothappy with the verdict.

(1)Jamelistan may appeal this verdict.

Tue or false

(2)An appeal would be heard before:

Athe original panel of experts

Bthe Appellate Body

Cthe Dispute Settlement Body

Dthe Secretariat.

(3)The Dispute Settlement Body has the power to:

Aaccept the appeal ruling

Bmodify the appeal ruling

Creject the appeal ruling

Dmonitor the implementation of the appeal ruling.

Council of Europe (COE)

The COE an organisation which consists of European member states whichaims to protect human rights, democracy and the rule of law, solveproblems facing European society and promote Europe's cultural identity.

The COE:

  • works towards legal cooperation in Europe
  • has 47 member countries and five additional 'observer' countries from outside Europe
  • seeks to improve judicial procedures
  • seeks to promote common solutions to modern legal problems
  • produces conventions for member states to adopt (on extradition, confiscation of proceeds of crime, protection of wildlife, doping in sport, bioethics and cloning, nationality and corruption)
  • has a website (
  • has a Committee of Ministers, a Parliamentary Assembly, a Congress of Local and Regional Assemblies and a Secretariat.

The Committee of Ministers:

  • is formed of the 47 member states foreign secretaries, or their representatives at Strasbourg
  • is the organisation's official decision-making body.

The Parliamentary Assembly:

  • has 630 members from the 47 national parliaments
  • has a President (currently Rene van der Linden from the Netherlands).

The Congress of Local and Regional Assemblies:

  • is composed of a chamber of local authorities and a chamber of regions.

The Secretariat:

  • has 1,800 members
  • is headed by a secretary general (currently Terry Davis from the UK).

Test your understanding 21

What is the Council of Europe?

Organisation for Economic Co-operation and Development (OECD)

The OECD is a group of member countries whose modern aim is to be aforum for discussing, developing and refining economic and socialpolicies.


  • has 30 member countries from most continents
  • has relationships with a further 70 countries
  • was historically an organisation set up to administer US and Canadian aid to Europe after World War II
  • creates legally-binding agreements and non-binding guidelines for countries (members and otherwise) to subscribe to
  • Provides guidance, e.g. on corporate governance (how companies are managed) – the OECD Principles of Corporate Governance.
  • has a website (

Test your understanding 22

What is the OECD?

International Institute for the Unification of Private Law (UNIDROIT)

UNIDROIT is an independent, inter-governmental organisation.


  • studies needs and methods of harmonising private commercial law
  • has 61 member states from five continents
  • is financed by contributions from member states
  • has a website (
  • draws up international conventions which are designed to have the force of law in priority to existing domestic law where adopted
  • draws up model laws for states to take into consideration when drafting their own private law
  • draws up general principles addressed to judges or arbitrators who are free to decide whether to implement them or not
  • its work has served as a basis for conventions issued by other bodies, such as the UN CCISG
  • has a three-tiered structure, with a Secretariat, a Governing Council and a General Assembly.

The Secretariat:

  • is responsible for carrying out the day-to-day work programme of UNIDROIT
  • is run by the Secretary-General nominated by the Governing Council
  • consists of civil servants and ancillary staff.

The Governing Council:

  • is made up of one ex officio member, who is the President, and 25 elected officials (judges, practitioners, civil servants)
  • supervises the work of the secretariat.

The General Assembly:

  • is the decision-making body of UNIDROIT
  • elects the governing council every five years
  • approves the work programme every three years
  • is made up of one official from every member state.

Test your understanding 23


5 International courts

International Court of Justice (ICJ)

The ICJ is one of the components of the UN, as discussed above.

The ICJ:

  • settles disputes put before it by states
  • provides legal advice on issues put before it by international organisations
  • is not a court for individuals
  • has 15 judges elected by the General Assembly of the UN for a term of nine years. No two judges must have the same nationality. Elections are held every three years for one-third of the seats and retiring judges may be re-elected.

States may submit a dispute to the court:

  • by specific agreement
  • by virtue of a jurisdictional clause in a treaty to which they are a party
  • by virtue of the Statute (if the dispute is with other signatories to the UN Statute).

Procedures of the court:

  • are governed by the rules of Court under the Statute
  • there are written procedures and then a public oral phase
  • there is no appeal.

International Criminal Court (ICC)

The ICC is an independent international organisation, formed by treatybetween nations in 1998, to deal with the gravest of crimes againsthumanity, such as genocide and war crimes.

The ICC:

  • has jurisdiction over states which have signed the Statute (currently 105 countries joined the Treaty)
  • may only prosecute states and individuals from states which have accepted the jurisdiction of the Statute
  • has a maximum sentence of 30 years' (life) imprisonment.

The International Court of Arbitration (ICA)

The ICA is a body set up by the International Chamber of Commerce tooversee all aspects of the arbitration process when members referdisputes between them to arbitration.

The ICA:

  • has a list of arbitrators that can be appointed to conduct the arbitration proceedings
  • decides on challenges to arbitrator.
  • approves arbitral awards
  • fixes arbitrators' fees.

Test your understanding 24

(1)The ICJ can try cases relating to individuals.

True or False.

(2)The ICC can try cases relating to individuals.

True or False.

(3)The ICA can try cases relating to individuals.

True or False.

Test your understanding 25

What is the ICA?

6 Courts versus arbitration

Operation of the courts

Courts are where legal disputes have historically been settled.

In a court case:

  • parties present their claim before a judge (and sometimes a jury of 'ordinary citizens') who decides the merits of the case
  • parties are often represented by legal personnel such as solicitors or barristers
  • parties have a right of appeal to a superior court if they disagree with the outcome.

Advantages and disadvantages of court-based adjudication

The main advantage of going to court is that it can provide a helpful legal solution.

The disadvantages are that choosing to go to court can be expensiveand time consuming. The cost of legal representation coupled with courtfees can act as a deterrent of going down this route especially wherethe case may proceed through the appeal courts.

Illustration 11 – Courts versus arbitration

In the UK, there are two systems of courts. The criminal systemdeals with offences against the state and the civil system deals withlegal disputes between citizens. Both systems have a structure of courtsso that the case will be heard in a court of 'first instance' but, if aparty does not agree with the outcome, the case can then be referred toan 'appellate' court.

The UK civil court structure contains five levels of courts. Themain court of first instance is the county court. From the county court,an appeal can be made to the High Court or the Court of Appeal(depending on the nature of the appeal). If the case is still disputed,an appeal can be made from the High Court to the Court of Appeal andfrom the Court of Appeal to the Supreme Court (previously House ofLords).

The House of Lords is the UK's superior court (that is, it is thefinal court in the UK to which an appeal can be taken). However, as theUK is a member of the EU, if a decision of the Supreme Court isdisputed, the case can be appealed to the European Court of Justice(ECJ).

Test your understanding 26

What is a court of first instance?


Arbitration is one example of what is collectively called alternativedispute resolution (ADR). It is a way of settling disputes without goingthrough the courts, by referring the issue to a third party forresolution.

Arbitration is:

  • a popular way of settling commercial disputes
  • the subject of the UN Model law on International Commercial Arbitration (set out below)
  • governed in the UK by the Arbitration Act 1996, which states that its principles are to allow resolution of disputes without unnecessary delay and expense, with the free agreement of the parties as to how the dispute will be settled subject only to such safeguards as are necessary in the public interest. The 1996 Act increases the role of the arbitrator and reduces the role of the court to a residual level of intervention where legal assistance is required.

Test your understanding 27

Define arbitration.

Advantages and disadvantages of arbitration

  • Privacy. Arbitration tends to be held in private, in contrast to proceedings in a court which are public. This means that sensitive information can be kept private and damaging publicity can be kept to a minimum.
  • Informality. Proceedings can be less formal than a court case and can be scheduled flexibly for the parties involved. However, arbitration now tends to be very formal with full use of legal representation so this advantage is diminishing in importance.
  • Speed. Generally a court case takes much longer than an arbitration.
  • Cost. Partly due to speed, arbitration can be cheaper than a court case. However, the cost of the experts involved in arbitration can still be significant.
  • Expertise. When a case is arbitrated, it is heard before a third party who may be an expert in the specific area under dispute and therefore the expert forms the judgement in line with accepted practice in that area. Parties are free to choose the arbitrator and decide on what expertise he or she must possess. He may be a legal expert or he may have expertise in the required field.
  • Finality. There is more limitation on appeals from an arbitration award than from the decision of the court.. Recourse after a decision has been made is therefore limited. The award can be enforced through court action under the UN Convention on Recognition and Enforcement of Foreign Arbitral Awards.
  • Neutral forum. Parties in international dispute will usually wish to avoid litigation in a foreign country. Arbitration may take place in a neutral forum which offers no advantage to either party to a dispute. (This is often perceived to be the biggest advantage of arbitration.)
  • Note that the advantages of arbitration are in many cases the disadvantages of court action (particularly privacy, informality, speed and expertise).

Advantages of court action

  • Judges are legal experts and may have greater expertise in evaluating evidence.
  • Court decisions are taken within a framework of precedent, so in theory the outcome is more predictable than in arbitration where decisions are made on a case-by-case basis.
  • There is much more scope for appeal in the court system.
  • Note that the advantages of the court system in general are disadvantages of the arbitration system. Parties will have to determine what the most important factors are for them in each case.

Illustration 12 – Courts versus arbitration

Sanjay and Thomas have a dispute as a result of a contract for theinternational sale of goods. There is no clause in their contractreferring to how disputes should be settled. The case involves a disputewith regard to the quality of goods supplied by Thomas. Thomas wouldprefer that this alleged lack of quality is not made public, as thismight harm his relationships with other customers. Thomas and Sanjay arekeen to resolve this matter quickly and amicably, as Thomas has alwaysbeen Sanjay's preferred supplier and he has a number of outstandingorders with him at the moment.

In this case, it would be to both Thomas' and Sanjay's advantage torefer the case to arbitration rather than to take it to court.Arbitration would give Thomas the privacy he would prefer, and it wouldresult in a quicker effective resolution.

Test your understanding 28

Indicate which of the following are advantages ofarbitration or court proceedings. Place A (arbitration) or C (courtproceedings) after the relevant sentence.

  • Proceedings are likely to be swifter.
  • Proceedings will be private.
  • The person presiding over the dispute will be chosen by the parties.
  • The person presiding over the dispute will be a judge.
  • There will be significant scope for appeal.

Test your understanding 29

Valerie and Wong have a dispute as a result of a contract for theinternational sale of goods. There is no provision for the settlement ofdisputes in the contract. They both want a speedy resolution to theissue which relates to a fairly obscure part of trade law. Wong feelsthat some recent disputes have been settled unfairly against himhowever, and wants to be able to appeal the decision if he does notagree with it.

Advise Wong.

7 Model Law on International Commercial Arbitration

Model Law on International Commercial Arbitration

Under Article 1(3) arbitration is international if:

  • the parties to the arbitration have their places of business in different states at the time of conclusion of the arbitration agreement (Article 1(3)(a))
  • or one of the following places is situated outside the State in which the parties have their place of business: (Article 1(3)(b)):
    • the place of arbitration if determined, in or pursuant to, the arbitration agreement (Article 1(3)(b)(i))
    • or the place where a substantial part of the obligations of the commercial relationship from which the dispute arises is in a different state from where the parties have their business (Article 1(3)(b)(ii))
    • or the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country (Article 1(3)(b)(iii)).

General provisions of the model law:

Unless the parties have agreed otherwise, any written communication(excluding those relating to court proceedings) is deemed to have beenreceived if it is delivered to the addressee personally or it isdelivered at his place of business, habitual residence or mailingaddress. If the place of business, habitual residence or mailing addresscannot be determined after reasonable enquiry, a written communicationis deemed to have been received if it is sent by registered letter (orother method which provides a record of the attempt to deliver it) tothe addressee's last known place of business, habitual residence ormailing address (Article 3(1)(a)).

  • The communication is deemed to have been received on the day it is delivered (Article 3(1)(b)).
  • The provisions of this article to do not apply to communication in court proceedings (Article 3(2)).
  • A party waives his right to object to non-compliance with this Model law or an aspect of the arbitral agreement if he does not make his objection without undue delay or if a time-limit is provided within such period of time (Article 4)).
  • No court shall intervene in matters covered by this law unless the law so provides (Article 5).

Arbitration agreement

An arbitration agreement is an agreement by the parties to submitto arbitration all or certain disputes which have arisen or which mayarise between them in respect of a defined legal relationship, whethercontractual or not. An arbitration agreement may be in the form of anarbitration clause in a contract or in a form of a separate agreement.

Under Article 7 an arbitration agreement:

  • shall be in writing (in a document signed by the parties, or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement in which the existence of an agreement is alleged by one party and not denied by the other)
  • results in any court action being referred to arbitration by the court to which a matter is brought unless the agreement is found to be null and void, inoperative or incapable of being performed (arbitral proceedings may be carried out while the court is determining this).

Under Article 9 it is declared that it is not incompatible with anarbitration agreement for a party to request, before or during thearbitral proceedings, from a court an interim measure of protection andfor court to grant such a measure.

Illustration 13 – Model Law

Albert and Brigitte have exchanged a series of letters in whichAlbert asserted that their agreement contained an arbitration agreement.Brigitte did not refute this claim. Therefore, in the event of dispute,under the Model law their dispute will be settled by arbitration. Underthe agreement between them, Albert is due to deliver a number ofmachines made to Brigitte's specifications in instalments over a periodof six months. She disputes the quality of the first instalment andrefuses to pay for it. Albert has delivered the second instalment.Brigitte refers the dispute to arbitration, but also seeks an injunctionthrough the courts to prevent Albert manufacturing the rest of themachines as there appears to be an error in how he is interpreting herinstructions.

Test your understanding 30

Define an arbitration agreement.

Test your understanding 31

An arbitration agreement shall be in writing under the Model Law.

True or false.

Arbitral tribunal

In respect of arbitrators:

  • the number shall be determined by the parties (Article 10(1))
  • if the parties do not determine the number, there shall be three arbitrators (Article 10(2))
  • no one shall be precluded from being an arbitrator due to nationality, unless the parties agree otherwise (Article 11(1))
  • the parties are free to agree on a procedure of appointing the arbitrator or arbitrators (Article 11(2))
  • if the parties do not agree the procedure, each party shall appoint one arbitrator and the two arbitrators thus appointed shall appoint the third one. If a party fails to appoint an arbitrator within 30 days of a request by the other party to do so, or the two appointed arbitrators fail to appoint a third, the appointment shall be made by the relevant court or authority, on request of one of the parties (Article 11(3)(a))
  • the relevant court or authority is the one specified by each particular state when enacting the Model Law Article 6.

Illustration 14 – Model Law

Clare, from the Canade, and Derek, from Danmark, have a disputewhich has been referred to arbitration. Clare has failed to appoint herarbitrator, and Derek requested that she do so 40 days ago. Derek hastherefore asked High Court of Danmark to appoint the arbitrator, asDanmark law states that the High Court is the relevant court in relationto this Model Law.

The appointment of an arbitrator may be challenged:

  • if circumstances exist which give rise to justifiable doubts as to his impartiality or independence or if he does not possess qualifications agreed by the parties (Article 12(2))
  • by the party that appointed him, or was involved in his appointment, only if that party becomes aware of facts relating to impartiality or qualifications after the appointment has been made (Article 12(2))
  • through a procedure agreed by the parties (Article 13(1))
  • if the parties have not agreed to a procedure, by a party sending a written statement of the reasons for his challenge to the arbitral tribunal within 15 days of becoming aware of who was on the tribunal (Article 13(2)).

The challenge is determined by (Article 13(2)):

  • the challenged arbitrator, if he resigns from the tribunal as a result of the challenge
  • the parties to the dispute if they both agree on the challenge
  • the arbitral tribunal if the arbitrator does not withdraw and the parties do not agree.

Under Article 13(3) – If a challenge is not successful:

  • the challenging party may request a decision on the challenge from the relevant court
  • the challenging party must make such a request within 30 days of hearing the decision
  • the decision of the relevant court will not be subject to appeal
  • the arbitral tribunal including the challenged arbitrator may continue with proceedings while such a request is being made/decided by the court.

An arbitrator:

  • may withdraw if he becomes unable to act for any reason whether de facto or de jure (Article 14(1))
  • if an arbitrator withdraws, a substitute arbitrator shall be appointed in the same way as the original arbitrator had been (Article 14(2)).

Test your understanding 32

If the parties do not agree to a specified number of arbitrators in their arbitration agreement, there shall be:





Test your understanding 33

A party may challenge the appointment of anarbitrator if there is justifiable doubt about his impartiality or hisqualifications.

True or False.

Arbitral proceedings

Under Article 16 a plea that the arbitral tribunal does not have proper jurisdiction to decide the case:

  • must be made before the submission of the statement of defence
  • can be made despite the pleader having participated in appointing an arbitrator
  • can be decided by the arbitral tribunal, after which the pleader may appeal to the specified court.

A plea that the arbitral tribunal has overstepped its jurisdiction during proceedings:

  • shall be raised as soon as the alleged incident has taken place
  • however, a tribunal may consider a later plea if it considers the delay justified.

Subject to any different agreement between the parties to the contrary:

  • the arbitral tribunal may order either party to take interim measures in respect of the subject matter of the dispute only (this is a very important restriction on the tribunal's powers) (Article 17).

During the proceedings:

  • the parties shall be treated with equality and shall be given full opportunity to present their cases (Article 18)
  • the parties are given freedom to agree on the procedures (Article 19(1))
  • if the parties do not agree on procedure, the arbitral tribunal may carry out proceedings in any way it sees fit (Article 19(2))
  • the parties are free to agree on the pace of arbitration (Article 20(1))
  • regardless of the parties' agreement, the tribunal may meet wherever it sees fit to consult, hear witnesses, inspect goods or other property or documents (Article 20(2))
  • unless otherwise agreed by the parties, proceedings commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent (Article 21)
  • the parties shall agree the language in which the proceedings will be carried out. If the parties do not agree on language, the tribunal will determine which language to use (Article 22(1))
  • the tribunal may order that documentary evidence be translated into the language in which the tribunal is being conducted (Article 22(2))
  • the tribunal will decide whether the hearings will be oral or documentary (unless the parties have agreed otherwise). The tribunal may decide whether the proceedings shall be conducted on the basis of documents and other materials. However, unless the parties have agreed that no such hearings shall be held, the arbitral tribunal shall hold such hearings at an appropriate stage of the proceedings if so requested by the parties (Article 24(1))
  • all documents, statements and other information submitted shall be communicated to the other party (Article 24(3))
  • all documents or expert report used by the tribunal in making a decision shall be communicated to the parties (Article 24(3))
  • if any party fails to appear at a hearing or produce documentary evidence, the tribunal will continue proceedings and make the award on the basis of the evidence before it (Article 25(c)).

Under Article 25 statements of claim and defence:

  • must be made within the time agreed by the parties or determined by the tribunal
  • the statement of claim must state the facts supporting the claim, the points at issue and the relief or remedy sought
  • the defence shall state the defence in respect of the same particulars
  • all relevant documents to the claims may be submitted with these statements
  • the claim or defence may be supplemented during the proceedings, unless the parties agree otherwise
  • unless otherwise agreed by the parties, if a party fails to make a statement of claim without reasonable excuse, the tribunal shall terminate proceedings
  • under Article 25(b), if the respondent fails to communicate his statement of defence in accordance with Article 23(1), the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant's allegations.

Experts and evidence (Article 26):

  • the tribunal may appoint one or more expert witnesses to report on specific issues determined by the tribunal
  • the tribunal may require a party to give the expert witness information or documents
  • unless agreed by the parties, the expert may participate in a hearing after the presentation of his expert report so that he may take questions
  • the tribunal (or a party with the tribunal's approval) may request the assistance of a competent court in taking evidence.

Test your understanding 34

In which language shall tribunal proceedings be conducted?


The arbitral tribunal shall make the arbitral decision:

  • by a majority decision (Article 29)
  • in accordance with whichever rules of law are chosen by the parties (Article 28(1))
  • if the parties have not agreed on the applicable rules of law, the arbitral tribunal shall apply the law determined by the conflicts of laws rules which it considers applicable (Article 28(2))
  • unless the parties have settled the dispute during proceedings, whereupon proceedings end (and, if the parties request it and the tribunal does not disagree, the tribunal records the agreed terms as the arbitral award) ( Article 30)
  • in writing and signed by all the arbitrators (or a majority of them, if reasons are given for omitted signatures) (Article 31(1))
  • shall state the reasons on which it is based unless the parties have agreed otherwise (Article 31(2))
  • shall state the date and place of arbitration (Article 31(3))
  • shall be delivered to each party (Article 31(4)).

Arbitral proceedings are terminated:

  • by the final award (Article 32(1))
  • by order of the tribunal, if a party withdraws his claim (unless the respondent objects and the tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute) (Article 32(2)a)
  • if the parties agree to end the proceedings (Article 32(b))
  • by order of the tribunal if the tribunal finds that the proceedings have become unnecessary or impossible (Article 32(c)).

Article 33 specified when correction of the award may be possible:

  • either party may request within 30 days that errors in computation or clerical errors or any other errors of similar nature in the award by corrected
  • if previously agreed by the parties, either party may request an interpretation of a specific point, with notice to the other party
  • if the arbitral tribunal considers either request to be justified, it shall make the correction or give the interpretation within 30 days of receipt. This interpretation will form part of the award
  • the tribunal may correct such errors by its own initiative within 30 days of the date of the award
  • additional awards in respect of claims made during the tribunal may be requested by a party within 30 days of receipt of the award
  • the tribunal shall make such award, if it considers it to be justified, within 60 days
  • arbitral awards shall be recognised as binding and enforceable in a competent court subject to the provisions of the Model Law.

Illustration 15 – Model Law

Gio and Hafeez have received the notification of the award inrespect of their arbitration on 30 May. Hafeez has noticed acomputational error meaning that he is due to pay compensation of$25,000 rather than $15,000. Gio has noticed that one of the issues hecovered in his claim document does not appear to be mentioned in theaward, although Hafeez did not present a defence to that part of theclaim and it appeared to be uncontested through the course of thearbitration.

Both parties have 30 days (i.e. until 29 June) to raise theseissues with the arbitral tribunal. If the arbitral tribunal finds thatthe requests are justified, it should address the error by 29 July andthe question of the additional award by 28 August.

It is 1 September. The arbitral tribunal corrected the originalaward to $15,000, but issued an additional award in respect of Gio'squery of $7,500. Hafeez has paid the $15,000 but refuses to pay theadditional $7,500. Gio may enforce the payment of this award in court.

Test your understanding 35

A request for an additional award not made in the official arbitral decision must be made within:

A10 days

B20 days

C30 days

D60 days


Under Article 34 an arbitral award may only be set aside by the court designated in the agreement if:

  • the party making the application for it to be set aside proves that the arbitration agreement was not valid, they were not given proper notice of the appointment of an arbitrator and were unable to present their case, the award deals with a dispute falling outside of the scope of the arbitration agreement, the tribunal or its procedure was not in accordance with the model law, or
  • the court finds that the subject matter of the dispute was not capable of settlement by arbitration under the law of the land, or that the award is contrary to public policy.

Test your understanding 36

An arbitral award may be set aside:

Abecause it conflicts with public policy.

Bbecause the party requesting the setting aside did not have proper notice of the arbitration proceedings taking place.

Cbecause the dispute fell outside of the scope of the arbitration agreement.

Dbecause the award is considered too punitive.

Chapter summary

Test your understanding answers

Test your understanding 1

A planned economy is one where the government makes the decisionsand choices that direct the economy, e.g what prices shall be paid forthings and where resources will be used.

Test your understanding 2

Democracy is a political system whereby the citizens of a country elect the government which rules them.

Test your understanding 3

Law is the body of rules under which society operates.

Test your understanding 4

The legislature is the primary law maker of a state.

Test your understanding 5

The concept of separation of powers involves the division betweendifferent persons or organisations (or both) of the three 'powers' ofgovernment in a state. These powers are the legislature, who make thelaw, the executive, who implement it, and the judiciary, who resolvedisputes concerning it. The idea behind this division is that it willmake tyranny less likely.

Test your understanding 6

Common law derives from the body of law built up in England between 1066AD and 1400AD.

Test your understanding 7

BPrecedents must be based on points of law, not fact.

Test your understanding 8

France and Germany. Note that France and Germany are only twoexamples. Nearly all European jurisdictions (except England and Wales,Ireland and Northern Ireland) are based on civil law.

Test your understanding 9

False It is a general principle of civil law that they are not supposed to interpret the law but apply it.

Test your understanding 10

AThe law is certain. B and C are features of common law. D is not true.

Test your understanding 11

In a common law system, judges have a number of rules andprinciples to apply in interpreting statutes, which will have beendrafted in great details. These include the fact that statutes do notoverride existing law, and do not concern matters not covered by thelaw.

In a civil law system, judges are required not to interpret the lawbut merely apply it. If interpretation is required, judges should tryand implement the social purpose behind the law and seek to apply theintention to the present day.

Test your understanding 12

Sharia law is law ordained by Allah, as set out in the Quran. It is based on hadith, precedents and interpretation.

Test your understanding 13

In general terms, this is false. Much of the interpretation ofSharia law has been carried out already by the Prophet and in historicIjtihad. A strong school of thought exists that further interpretationis unnecessary.

Test your understanding 14

Qiyas is a method of interpreting how to apply law to a matter bycomparing that matter with one on which the Quran is clear. For example,a comparison between the effects of taking alcohol and taking illegaldrugs leads to the conclusion that taking illegal drugs is forbidden bythe Quran, because taking alcohol is forbidden. (Please note that takingmedications is not affected.)

Test your understanding 15

Public international law is law which is recognised by a group ofnations. Examples are conventions and treaties, international custom andgeneral principles of law recognised by civilised nations.

Test your understanding 16

Private international law is a set of national, domestic rules todetermine jurisdiction and applicable law in international contracts.

Test your understanding 17

Conflict of laws will arise where the law of two differentcountries produces different outcomes, making it difficult for partiesin those countries to trade with one another.

Test your understanding 18

UNCITRAL is the legal body of the UN which has largely harmonisedand unified public international law. It is formed of 61 states electedby the UN General Assembly and it has issued various model laws andconventions.

Test your understanding 19

The International Chamber of Commerce is an organisation created bybusiness leaders from various countries which aims to 'serve the worldbusiness community by promoting trade and investment, open markets forgoods and services, and the free flow of capital'.

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(2)C– The Appellate Body

(3)The Dispute Settlement Body doesnot have the power to modify the appeal ruling (B); it can simplyaccept (A) or reject it (C). It would also monitor the implementation ofthe ruling (D).

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An organisation in Europe which aims to protect human rights,democracy and the rule of law. Any European state is welcome to be amember of the COE.

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The OECD is a group of member countries whose modern aim is to be aforum for discussing, developing and refining economic and socialpolicies.

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UNIDROIT is the International Institute for the Unification ofPrivate Law. It is an independent, intergovernmental organisation.

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(1)False: the ICJ only has jurisdiction over cases involving states, not individuals.

(2)True: the ICC can try individuals from states which recognise the jurisdiction of the ICC.

(3)False: the ICA does not'try' cases as such, it facilitates the arbitration process in disputeswhich can be between individuals or individual companies. We shall lookat the difference between courts and arbitration in the next section.

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The ICA is the International Court of Arbitration, which is an armof the International Chamber of Commerce. It exists to facilitate thearbitration process, by maintaining approved lists of arbitrators,overseeing cases and awards and approving arbitrators' fees.

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A court of first instance is the court where a legal dispute orcase is heard primarily. If there is any dispute with the judgement inthe case when it has been heard in a court of first instance, it is thenreferred to an appellate court.

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Arbitration is a procedure whereby the parties in dispute refer theissue to a third party for resolution rather than taking the issue tothe courts.

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  • Proceedings are likely to be swifter. (A)
  • Proceedings will be private. (A)
  • The person presiding over the dispute will be chosen by the parties. (A)
  • The person presiding over the dispute will be a judge. (C)
  • There will be significant scope for appeal. (C)

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Wong's desire to appeal if he is unhappy with the decision suggeststhat court proceedings might be his best option. However, this has tobe balanced against the advantages of arbitration, which would give aswifter decision, and would be heard in front of an expert in the'fairly obscure' area of trade law to which it relates. Arbitrationawards can be challenged only in very limited circumstances, andalthough he may be smarting from the results of previous arbitrations,arbitration might still be the better option in this case. It is likelyto be the best option for Valerie, and if Wong wants to keep a goodfuture relationship with Valerie, this would be another reason forpreferring arbitration.

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An arbitration agreement is an agreement by the parties to submitto arbitration all or certain disputes which have arisen or which mayarise between them in respect of a defined legal relationship, whethercontractual or not. An arbitration agreement may be in the form of anarbitration clause in a contract or in the form of a separate agreement.

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B3 – one shall be selected by each party and the two so chosen will select the third.

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Whatever language is determined by the parties, or, if they cannot agree, the tribunal decides.

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C – 30 days

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All the listed reasons may cause the arbitral award to be set aside.

Created at 5/24/2012 2:42 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 5/25/2012 12:53 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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