The Role of International Contracts in Resolving Disputes Through International Arbitration


Commercial relations often face critical disputes that jeopardize their stability. National courts, traditionally tasked with resolving such disputes, frequently fail to address them timely and professionally, creating a void effectively filled by international arbitration. This mechanism has become the most widely used private dispute resolution method in the commercial sector. Parties voluntarily agree to arbitration by incorporating an arbitration clause into their primary contracts or by signing a separate arbitration agreement, endowing the arbitral tribunal with jurisdiction and authority to resolve the dispute.

An international arbitration agreement is thus a cornerstone of the arbitration process, foundational to almost every arbitration. If such an agreement or clause is not effectively and professionally formulated, it may lead to future disputes, unjust consequences, extravagant legal costs, and ultimately, injustice.

International Arbitration:

International arbitration is a private process for settling disagreements resulting from cross-border connections. In many nations, it has grown significantly as a means for parties to resolve their disputes without dealing with the formalities and challenges of their respective legal frameworks. Furthermore, the legal systems of the majority of nations are evolving in parallel with the global expansion of international arbitration. States worldwide have updated their arbitration laws to reflect this reality. Through international arbitration, parties select the processes that will be used to settle their disagreement, the arbitrators, and even the arbitration venue.

International Contracts:

An arbitration agreement or a contract with an arbitration clause is generally considered the basis of arbitration. Such an agreement submits an ongoing dispute between the parties or one that may develop in the future to arbitration. In other words, the international arbitration agreement is a condition sine qua non for international arbitration.

There are two methods by which an arbitration agreement can be formulated. Firstly, it could be written as a clause in the parties’ agreement to a contract. This arbitration clause clarifies that parties will submit to arbitration in a dispute about that particular contract. The second way of formulating an arbitration agreement is through a submission agreement. Unlike a clause, a submission agreement relates to disagreements that have already occurred and is, therefore, entirely different from the main contract.

Essence of International Contracts in International Arbitration:

In modern society, various disputes arise between contracting parties. The most fundamental way to maintain peace and order is to resolve these disputes effectively and efficiently. However, the advent of modern times has changed the types of disputes and how each is solved. There are four main approaches by which conflicts can be resolved, which have also evolved: Right-Based, Power-Based, Interest-Based, and Legislative.

In traditional litigation, the right-based or power-based approach is accepted, creating a win-lose situation. Though it resolves the dispute, it creates a further divide in society as one party dominates the other through social, political, and economic power. On the other hand, an Interest-based approach resolves disputes through deliberations and discussions, focusing on creating a win-win situation. The parties’ interests are prioritized over the desire to win. The legislative approach involves a competent authority making rules and regulations, creating a win-lose situation without catering to the parties’ interests.

Among these approaches, the interest-based approach caters to the needs of the parties in dispute, ultimately achieving the desired result in their best interest. While litigation is the tried-and-true institutional mechanism delivering justice by upholding established legal principles, Alternative Dispute Resolution (ADR) has positioned itself as an “alternative” to the drawn-out adjudication process. It involves active participation from the parties and the presence of a neutral third party who can facilitate a platform for deliberation and dispute resolution while restoring the parties’ relationship to its pre-conflict state.

Arbitration is a popular method of resolving disputes not only in commercial contexts but also in employment, labour, securities, and construction. It is the preferred method for settling disagreements in international commercial contracts. In modern times, international contracts generally include an arbitration clause to avoid resolving disputes through the local court of another party. A well-drafted arbitration clause in a contract plays a crucial role in facilitating more effective arbitration, discouraging agreement violations, and reducing the chance of litigation by acting as a reasonable means of resolving disputes.

There is no universal arbitration clause for all contracts. The appropriateness of various elements of the clause depends upon the transaction’s context: the type of contract, the nature of the parties, the laws that might apply to performance, and the places where the award might be enforced. Apart from having an effective and binding arbitration clause in a contract, it should unambiguously and unequivocally reference arbitration, preferably under the rules of a reputable and experienced institution.

An arbitration clause is generally the last contractual provision negotiated between the contracting parties, resulting in inefficiency and unnecessary conflict, leading to increased expenses if a dispute arises due to a lack of deliberation and discussion over the arbitration clause. However, in the modern era, where global trade and commerce are soaring, arbitration clauses in international contracts serve several critical purposes, making them crucial for facilitating worldwide commerce and dispute resolution.

Intricacies of International Contracts:

Well-crafted international contracts are foundational to smooth cross-border transactions and mitigate risks in case a dispute arises. They require understanding the legal system, cultural nuances, and risk mitigation strategies. Considering these essential elements, an effective and efficient contract can be drafted to ensure successful and smooth business operations between the parties.

Two critical questions arise while considering an international contract: (1) Where will a dispute be heard if it arises? and (2) What law or rule will govern the contract? Parties must answer these questions by including the choice of forum clause and the choice of law clause in the contract. The most crucial clause is the Arbitration Clause. The importance of an arbitration clause has been discussed in this article. Arbitration in international agreements is particularly popular because, unlike court judgments, there is a single comprehensive body for enforcing foreign arbitral awards, governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, with 156 countries being part of it.

No universal arbitral clause exists, but essential elements should be part of an arbitration clause. These include:

  • Unambiguous and unequivocal reference – Clear reference to arbitration to avoid ambiguities and outline the framework for dispute resolution.
  • Scope of Disputes – Defines the arbitrator’s authority, granting broad authority to decide disputes in the parties’ connection.
  • Number of Arbitrators – Specifies the number of arbitrators, typically a sole arbitrator for simple matters and a three-member tribunal for complicated transactions.
  • Language – Specifies the language for arbitration proceedings.
  • Arbitration rules and procedures – Specifies the rules and guidelines governing the process, often involving established institutions like the International Chamber of Commerce (ICC) or the Singapore International Arbitration Centre (SIAC).
  • Place of Arbitration – Specifies the physical place where proceedings will occur.
  • Governing Law – Specifies the law governing the arbitration agreement and the underlying contract.
  • Cost and Fees – Addresses the allocation of costs and fees associated with arbitration.

Formulating an international commercial contract involves researching the laws and rules governing the contract. The United Nations Commission on International Trade Law (UNCITRAL) has formulated treaties providing rules governing specific agreements, including the CISG, Limitation Convention, and Electronic Communication Convention. Apart from these conventions, parties may choose national law to apply to their contracts.


With the expansion of trade, arbitration has become a lifesaver alternative to traditional litigation. The parties’ agreement gives rise to arbitration, reflecting their free choice. It offers quick, flexible, and cost-effective dispute resolution. An arbitration agreement must be drafted carefully and efficiently, free from defects that could complicate future arbitration or lead to injustice. Whether an arbitration clause in a main contract or a submission agreement, it requires necessary elements such as ‘agreement to arbitrate,’ ‘scope of an arbitration agreement,’ and ‘finality of awards.’ These crucial elements must be present to enforce the arbitration agreement.

In conclusion, arbitration has embedded significant trust in the minds of businesses and trade partners, increasing the flow of international trade globally. It has become a common perception that businesses from different countries generally prefer to arbitrate their disputes rather than adjudicate them in the courts of one side or another, believing that an international tribunal is more independent of national prejudices and knowledgeable about international business practices than an ordinary national court of law would be.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.

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