Originally from Arbitration Law of Canada: Practice and Procedure, Fourth Edition

PREVIEW

1.1          HISTORICAL BACKGROUND

Arbitration as a means of settling commercial disputes is as old as trade itself.  Evidence of commercial dispute resolution exists from Egyptian, Greek and Roman times.  References to trade disputes being referred to a third party for resolution are recorded on stone inscriptions and Egyptian papyri.

Concurrent with the development of modern legal systems and the rule of law, merchants developed the lex mercatoria, a body of transnational rules, general customs, principles and practices recognized by merchants and applied by trusted third parties, whether within national boundaries or without.  The lex mercatoria developed separate and apart from national law. As observed by Klaus Peter Berger,  the underlying motive in the development of the lex mercatoria was to have disputes between merchants decided by expert assessors or jurors according to the customs of the merchants rather than according to national law. The rules and procedures for resolving commercial disputes were a creation of the merchants themselves and were considered independent of and more useful and certain than the common law. 

At the international level, merchants were attracted to the arbitration process because it provided a mechanism to settle disputes without either party having to be subjected to the courts of the other trading partner.  This was particularly important if one of the partners to a trading arrangement was itself a State, or a State-run enterprise.  Also, the arbitral procedure could be altered to take into account diverse legal systems and practices attendant with international trade.  The lex mercatoria was not tied to any one legal system, but was transnational.  Decisions could be made by those knowledgeable in the field as, in most cases, the arbitrator was a fellow merchant.

From an international perspective, the two most serious drawbacks to arbitration were the ability of a local court to interfere with the arbitral process and the lack of any coercive power available to enforce an arbitral decision. Unless both parties were prepared to agree to participate in the arbitration and to be bound by its result, the process could prove to be futile.  Thus, a combination of domestic and international law was required to provide a framework within which the process could operate effectively, not only for the conduct of the arbitration itself but also to enforce any award  that might result from an arbitral resolution.