FRAMEWORK

GOVERNING INTERNATIONAL COMMERCIAL ARBITRATION:

UNCITRAL MODEL LAW AND PRINCIPLES


SANKALP JAIN*


INTRODUCTION

United Nations Commission on International Trade Law (UNCITRAL) was established in
1966 which deals with International Commercial Arbitration and Conciliation,
International Sale of Goods (CISG) and Related Transactions, Security Interests,
Insolvency, International Payments, International Transport of Goods, Electronic
Commerce, Procurement and Infrastructure Development. Leaving everything else
aside, the focus of this paper is to focus on the arbitration aspect of the UNCITRAL
Model Law.

The UNCITRAL Model Law on International Commercial Arbitration is designed to assist
States in reforming and modernizing their laws on arbitral procedure. The Model Law
covers all stages of the arbitral process: formation of arbitration agreement, the
composition and jurisdiction of the arbitral tribunal and the extent of court intervention
in the recognition and enforcement of the arbitral award. The Model Law reflects
worldwide consensus on key aspects of international arbitration practice having been
accepted by States across regions and with different legal and economic systems. For
example, in India the old Arbitration Act, 1940 was repealed and replaced by Arbitration
Act, 1996 with the incorporation of several provisions of the UNCITRAL Model Law. The
model law, as the name suggests, is only a model i.e., a prototype of law. The UNCITAL
Model Law has harmonized the common law and the civil law concept on arbitration.

UNCITRAL developed the Model Law on International Commercial Arbitration to serve as
a uniform standard of arbitral procedure. The Model Law forms an integral part of
UNCITRAL’s objective of harmonizing international trade and is seen as a crucial pillar in
the world of international arbitration. It offers many advantages to parties faced with

*
sankalp_jain11@yahoo.com.

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disputes. It eliminates the frustration of conforming to the national laws of different
countries; serves as a framework for international commercial arbitration and creates
favourable climate for international commercial arbitration. The most important
characteristic of the UNCITRAL Model Law is its universality.

UNCITRAL: ORIGIN, COMPOSITION AND OBJECTIVE

UNCITRAL was established in 1966 by the General Assembly of the United Nations. The
General Assembly recognized that there was a lack in similarity between the national
laws of different countries governing international trade law and that these disparities
created obstacles for international traders. Furthermore, it was realized that there was a
need for a global set of standards or rules and an improved legal framework to further
the progressive harmonization, modernization and unification of the existing national
regulations that governed international trade. They saw UNCITRAL as a way to resolve
these obstacles and more importantly, the UN would then be able to play a more active
part in the international trade sphere.

The establishment of UNCITRAL opened a new chapter for the harmonization and
unification of international trade law. UNCITRAL aims to promote the use of various
legislative and non-legislative texts and legal guides in certain areas of commercial law.
Its first major way of contributing to the international trade sphere and law was by
adopting the UNCITRAL Arbitration Rules in 1976 and then the UNCITRAL Conciliation
Rules in 1980. Finally, and most importantly, the UNCITRAL Model Law was adopted and
approved in 1985.

Members are selected from among States Members of the United Nations. UNCITRAL’s
original membership comprised 29 States. It was expanded by the General Assembly in
1973 to 36 States and again in 2002 to 60 States. The primary objective of UNCITRAL is
to harmonize and unify international commercial trade through formulating sets of legal
rules and texts, model laws, contractual rules, legal guides, recommendations, the
enactments of uniform commercial law, updated relevant case law, technical assistance,
and seminars regarding uniform commercial law. The UNCITRAL Model Law has inspired

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many countries to reform their arbitration legislations and to incorporate the Model Law
within their domestic laws.

INTERNATIONAL COMMERCIAL ARBITRATION: PRINCIPLES

The Model Law allow the parties to choose the rules of law that will be applicable
regarding the substance or merits of the dispute and, therefore, they do not have to
choose a specific national legal system. Generally recognized principles and phrases
make the Model Law user-friendly and more flexible. Moreover, the Model Law was not
designed with a particular State in mind and thus, it was not designed against the
background of a particular legal system. This results in the universal acceptance of the
Model Law and the use thereof by any State throughout the world. The UNCITRAL
Model Law serves as a good framework for domestic arbitration as it embodies all the
necessary and relevant provisions required to ensure that arbitration proceedings run
effectively. There are four main principles recognized by Model Law by which
international commercial arbitration is governed. The said principles are Party
Autonomy, Separability, Competence-Competence, Territorial Principle and
Enforceability.

1. Party Autonomy

The first basic principle in UNCITRAL model law on international commercial arbitration
is that of party autonomy. Arbitration allows the parties substantial autonomy and
control over the process that will be used to resolve their disputes. This is particularly
important in international commercial arbitration because parties do not want to be
subject to the jurisdiction of the other party’s court system. Each party fears the other
party’s “home court advantage.” Arbitration offers a more neutral forum where each
side believes that it would have a fair hearing. Moreover, the flexibility of being able to
tailor the dispute resolution process to the needs of the parties, and the opportunity to
select arbitrators who are knowledgeable in the subject matter of the dispute, make
arbitration particularly attractive. Today, international commercial arbitration has
become the norm for dispute resolution in most international business transactions.

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The entire scheme of the Model Law provides for a wide scope of party autonomy. The
most important principle on which the Model Law should be based is the freedom of
parties to tailor the rule of game to their specific needs. The Model Law expressly
permits the parties to specify the international nature of the arbitrable subject matter;1
choose institutionalized arbitration and rules;2 agree on the manner in which written
communications are deemed received; 3 determine the number of arbitrators; 4
determine the procedure for arbitrator appointment; 5 agree on a procedure for
arbitrator challenge;6 determine the procedure for conduct of the arbitral proceedings;7
determine the language(s) to be used;8 agree to the manner and time frames governing
presentation of claims; 9 agree to oral hearings; 10 agree as to defaults 11 and experts
appointed by the tribunal;12 choose the law(s) which will govern the proceedings;13 and
authorize the arbitrators to decide ex aequo et bono or as amiable compositeur.14

In India, the Arbitration and Conciliation Act, 1996 is based on the UNCITRAL Model Law
on International Commercial Arbitration. The Act by virtue of its provisions recognizes
the four principles of Party Autonomy, Separability, Competence-Competence,
Territorial Principle and Enforceability. The principle of party autonomy is determined by
the following relevant provisions of the Act, according to which the parties are:

a) Free to determine the number of arbitrators;15
b) Free to select the arbitrators;16

1
UNCITRAL Model Law, Art. 1(3)(c).
2
Art. 2(d).
3
Art. 3(1).
4
Art. 10(1).
5
Art. 11(2).
6
Art. 13(1).
7
Art. 21.
8
Art. 22(1).
9
Art. 23(1).
10
Art. 24(1).
11
Art. 25.
12
Art. 26.
13
Art. 28(1).
14
Art. 28(3).
15
Arbitration and Conciliation Act, 1996; S. 10.
16
S. 11(1).

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 c) Free to agree on a procedure for challenging an arbitrator;17
d) Free to determine the procedure for conduct of the arbitral proceedings;18
e) Free choose the place of arbitration;19
f) Free to determine the language to be used;20
g) Free to decide oral hearings for evidence and arguments;21
h) Free to agree on the experts appointed by the tribunal if parties agree.22

Parties are free to determine the decision-makers, i.e. the arbitrators, which are usually
one or three and generally chosen by the parties. Parties also decide whether the
arbitration will be administered by an international arbitral institution, or will be ad hoc,
which means no institution is involved. The rules that apply are the rules of the arbitral
institution, or other rules chosen by the parties. Parties are free to choose the applicable
substantive law. International arbitral rules generally allow parties to an agreement
containing an arbitration clause to choose the substantive law that will govern disputes.

2. Separability

One of the defining principle governing international commercial arbitration that
arbitration does not ‘die’ with the main contract. It is independent in itself. Under the
autonomy doctrine of the arbitration clause, the agreement to arbitrate contained in an
arbitration clause is regarded as an agreement separate from the rest of the contract
between the parties and hence, it may continue to exist when for all other purposes the
contract comes to an end. The arbitration clause survives in the case of termination,
voidance or invalidity of the main contract. This ‘staying alive’ feature of arbitration
clause is known as the principle of separability. Many disputes in international trade are
not settled in court but by arbitration. The principle that the arbitration agreement is
separate/autonomous from the main contract has long been established by the case
laws in the early 1940s. Moreover, the arbitration clause may lead this separate

17
S. 13(1).
S. 19(2).
18

19
S. 20(1).
20
S. 22(1).
21
S. 24(1).
S. 26(1).
22

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existence not only when the contract has come to an end by performance but also when
it has come to an end prematurely as a result of a supervening event such as illegality.

Since the arbitration clause is the base on which the arbitration itself is found, it is
important that it should be capable of this separate existence. Most claims are brought
to arbitration following termination of a contract. It would be ironic if the arbitration
clause was held to have been terminated along with the contract of which it formed
part. Indeed it is at this point that it is most needed, as a method of determining the
claims and counter-claims of the parties. UNCITRAL Model states that an arbitration
agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement. 23 Model Law reproduces the term of Article 21(2) 24 of the
UNCITRAL Arbitration Rules and provides that:

"The arbitral tribunal may rule on its own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement. For that purpose, an
arbitration clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract. A decision by the arbitral tribunal that
the contract is null and void shall not entail ipso jure the invalidity of the arbitration
clause."25

The UNCITRAL Model Law treats the arbitration clause separable from the main contract
for the purposes of according the arbitral tribunal the competence to decide on its own
jurisdiction. Article 16(1) creates two fictions. The first fiction, which provides that the
arbitration clause shall be treated as an agreement independent of the main agreement,
has the effect of preventing a party from going to court and challenging the validity of
the main agreement. The fiction assumes that any objection to the validity of the main
agreement would be an objection to the arbitration clause as well. By treating the
arbitration clause as an independent agreement, any objection to the validity of the
main agreement would not affect the arbitration clause. The fiction in treating the
arbitration clause independently presumes (or at least, provides a default rule) that the

23
Art. 7(1).
24
“An arbitration clause which forms part of a contract shall be treated as an agreement independent of
the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration clause”.
Art. 16(1).
25

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parties agreed that disputes pertaining to the validity of the agreement(s) has to be
raised before the tribunal. The second fiction is a counter to the Ex nihilo nihil fit
argument. The Latin phrase means "nothing comes from nothing". The purpose of the
fiction is to save the award or decision by the arbitral tribunal in case the tribunal
declares the main agreement containing the arbitration clause, and therefore, the
arbitral clause to be void.

The Arbitration and Conciliation Act, having been modeled on the UNCITRAL Model Law,
also incorporates the principle of separability by virtue of its provisions. According to the
Act, an arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement.26 The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the existence or validity of
the arbitration agreement, and for that purpose, an arbitration clause which forms part
of a contract shall be treated as an agreement independent of the other terms of the
contract and a decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause.27

A comparison of the relevant provisions of the UNCITRAL Model Law and the Act of 1996
would reveal that the provisions are virtually identical and therefore, any separability
principle expounded by the Indian courts should be in consonance with the separability
principle as found in the UNCITRAL Model Law.

3. Competence-Competence

UNCITRAL Model Law recognizes the principle of Competence-Competence i.e.,
competence to decide one’s own competence. The fact that the arbitral tribunal has the
competence to rule on its own jurisdiction and to define the outlines of its jurisdiction,
only means that when such issues arise before it, the Tribunal can and possibly, ought to
decide them. Section 16 of the Act of 1996 corresponds to Article 16 of the UNCITRAL
Model law. Every country which has adopted the Model Law has conferred powers on
the arbitrators to rule on own jurisdiction and define the outlines of their jurisdiction.

26
S. 7(2).
27
S. 16(1).

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In Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. 28 it was
observed that the arbitral tribunal has the competence to rule on its own jurisdiction but
this can happen only when the parties have gone to the arbitral tribunal without
recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided
under these Sections, before a reference is made, Section 16 cannot be held to
empower the arbitral tribunal to ignore the decision given by the judicial authority or
the Chief Justice before whom the reference was made. The competence to decide does
not enable the arbitral tribunal to get over the finality conferred on an order passed
prior to its entering upon the reference by the very statute that creates it. That is the
position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality
given to the order of the Chief Justice on the matters within his competence under
Section 11 of the Act are incapable of being reopened before the arbitral tribunal. In this
case what was considered is only the fact that under Section 16, the arbitral tribunal has
the right to rule on its own jurisdiction and any objection, with respect to the existence
or validity of the arbitration agreement.

Competence-competence is a widely accepted feature of modern international
arbitration and allows the Arbitral Tribunal to decide its own jurisdiction including ruling
on any objections with respect to the existence or validity of the arbitration-agreement,
subject to final review by a competent court of law, i.e. subject to Section 34 of the Act.
Like the arbitration agreement, it has or may have both positive and negative effects,
even if the latter have not yet been fully accepted in a number of jurisdictions. The
positive effect of the competence-competence principle is to enable the arbitrators to
rule on their own jurisdiction as is widely recognized by international conventions and
by recent statutes on international arbitration. However, the negative effect is equally
important. It is to allow the arbitrators to be not the sole judges, but the first judges of
their jurisdiction. In other words, it is to allow them to come to a decision on their
jurisdiction prior to any court or other judicial authority, and thereby to limit the role of
the courts to the review of the award.


28
AIR 2002 SC 778.

8
4. Territorial Principle

The UNCITRAL Model Law unequivocally accepts the territorial principle. The principle
embodied in Article 1(2) is that the Model Law in a given State applies only if the place
of arbitration is in the territory of that State. However, Article 1(2) also contains
important exceptions to that principle to the effect that certain articles apply
irrespective of whether the place of arbitration is in the enacting State or elsewhere or,
as the case may be, even before the place of arbitration is determined. Under territorial
principles, each jurisdiction has authority to regulate people and events within its
borders, while no jurisdiction possesses the power to control people and events outside
of its borders. However, territoriality alone is insufficient to determine the applicable
law when a dispute involves people, acts, and events spanning multiple jurisdictions.
Therefore, some secondary principle is necessary to choose the governing jurisdiction
among the territorial possibilities.

The Arbitration and Conciliation Act, 1996 has also adopted the territorial principle,
thereby limiting the applicability of Part I to domestic arbitrations which take place in
India. In Venture Global case, 29 the judgement has completely disregarded the seat
theory which is the prevailing norm in international commercial arbitration. The Model
Law is based on the territoriality principle with the seat of arbitration having supervisory
power and control over arbitral proceedings taking place within its territory. While
discussing the problems surrounding the territorial applicability of the Model Law during
its drafting, it was clearly stated that the criteria used for determining the Model Law’s
applicability must be in harmony with the Convention (which also recognises the seat
theory) so as to avoid any conflict between them. This meant that the Model Law was to
be applicable on the basis of the seat of arbitration. Article 1(2) of the Model Law
declares that the Model Law would apply “only if the place of arbitration is in the
territory of this State.” Having accepted the principle of territoriality, it is evident that
the intention of the Parliament was to segregate Part I and Part II. Therefore, any of the
provisions contained in Part I cannot be made applicable to Foreign Awards, as defined

29
Venture Global v. Satyam Computer Services Ltd. (2008) 4 SCC 190.

9
under Sections 44 and 53, i.e., the New York Convention and the Geneva Convention.
This would be a misrepresentation of the scheme of the Act.

The ruling of Venture global case was overruled in Bharat Aluminium Company and Ors.
v. Kaiser Aluminium Technical Service, Inc. and Ors.30 A plain reading of Section 2(2)
makes it clear that Part I is limited in its application to arbitrations which take place in
India. The Parliament by limiting the applicability of Part I to arbitrations which take
place in India has expressed a legislative declaration. It has clearly given recognition to
the territorial principle. Necessarily, therefore, it has enacted that Part I of the
Arbitration Act, 1996 applies to arbitrations having their place/seat in India.

5. Enforceability

International transactions concern the movement or organization of assets across the
borders of two or more countries and might involve the entities of different countries. In
the case of disputes regarding international transactions, it is important to ensure that
the decision resolving the dispute is enforceable in all the countries affected by the
transaction, preferably in all countries where the losing party has assets that can be
attached to satisfy the credit of the winning party. The enforcement of foreign arbitral
awards is regulated primarily by the New York Convention on the Recognition and
Enforcement of foreign Arbitral Awards (1958), which has been ratified by very many
states and therefore ensures, to a great extent, a uniform and effective treatment of
arbitral awards’ enforceability. The enforcement of foreign judicial decisions, on the
other hand, does not enjoy the same uniform treatment. The principles of international
cooperation and of economy of judicial proceedings are recognised in a large number of
states but implementation of the principles, which results in the recognition and
enforcement of foreign judicial decisions, is left to the internal legislation of the single
states or to bilateral or multilateral treaties concerning specific areas. Limitation of the
reasons for challenge, as well as grounds for refusal of enforcement of the award is one
of the common characteristics of recently enacted or amended arbitration statutes, in
particular with respect to international arbitration.


MANU/SC/0722/2012.
30

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CONCLUSION

The UNCITRAL Model law is considered as the standard against which other arbitration
legislations in the world are evaluated. Therefore, it is a good model and standard on
which arbitration legislation can be based. A uniform international commercial
arbitration system is something that is sought throughout the world. International
commercial arbitration has become the established method of dispute resolution due to
widespread consensus in the business community on its effectiveness. The UNCITRAL
Model law has harmonized the common law and the civil law concepts on arbitration.
The objective of the promoters of the UNCITRAL Model law was limited only to provide a
model for the states desiring uniformity and harmonization of arbitration legislation.
Therefore, the Model law remains far from comprehensive, leaving many important
areas of arbitration law and practice unexplored. The result of adopting a model law in
its entirety is that this Act of 1996 inherits all the weaknesses and shortcomings of its
model.

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 BIBLIOGRAPHY


PRIMARY SOURCES

1) Arbitration Act, 1940

2) Arbitration and Conciliation Act, 1996

3) UNCITRAL Model Law on International Commercial Arbitration, 1985

4) UNCITRAL Model Amendment Law, 2006

5) General Assembly Resolution 2205 (XXI), 1966

6) General Assembly Resolution 57/20 (XXXIII), 2002

SECONDARY SOURCES

1) Alan Redfern, Martin Hunter, et. al. Law and Practice of International Commercial
Arbitration (Sweet & Maxwell, London, 4th edn., 2004)

2) Badrinath Srinivasan “Arbitration and the Supreme Court: A Tale of Discordance
Between the Text and Judicial Determination” 4 NUJS L. Rev. 639 (2011)

3) David St. John Sutton, Judith Gill, et. al. on Arbitration (Sweet & Maxwell,
London, 23rd edn. 2007)

4) Erin A. O’ Hara and Larry E. Ribstein, “From Politics to Efficiency in Choice of
Law”, The University of Chicago Law Review

5) Fouchard, Gaillard, Goldman, “International Commercial Arbitration” KL Int. 1999

6) Gaillard E. & Savage J., “Fouchard Gailard, Goldman on International Commercial
Arbitration” 197 KL Int., The Hague, 1999

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 7) O. P. Malhotra and Indu Malhotra, The Law And Practice of Arbitration and
Conciliation (Lexis Nexis Butterworths, New Delhi, 2nd edn. 2006)

8) P.C. Markanda, Law Relating to Arbitration and Conciliation: Commentary on the
Arbitration and Conciliation Act, 1996 (Lexis Nexis Butterworths Wadhwa & Co.
Nagpur, 7th edn. 2009)

9) R. A Sharma, Arbitration In Construction Contracts (Om Law Book House, Delhi,
2005)

CASE LAWS

1) Bharat Aluminium Company and Ors. v. Kaiser Aluminium Technical Service, Inc.
and Ors. [MANU/SC/0722/2012]

2) Heyman v. Darwins Ltd. [(1942) App Cas 356]

3) Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd.
[AIR 2002 SC 778]

4) National Thermal Power Corporation v. Singer Company [AIR 1993 SC 998]

5) Venture Global v. Satyam Computer Services Ltd. [(2008) 4 SCC 190]

WEB SOURCES

1) http://www.uncitral.org

2) http://www.manupatrafast.in/pers/Personalized.aspx

3) http://www.indiankanoon.org

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