The different parties to a dispute may agree expressly to refer or submit their dispute to an authority whose powers to settle an argument are not drawn from a national or international institution. This form of dispute settlement is called arbitration. It differs from conciliation in that it results in a legally binding settlement.
In many cases, each party to the dispute designates an independent arbitrator, and the two arbitrators select a third one. This is a common practice in business matters, and it also plays an important role in international relations between States and between international organizations. When used between States, it is seen as a means of pacific settlement of disputes: States or international organizations choose the judges, either establishing an ad hoc arbitral body or in the framework of an existing mechanism, who then pronounce a binding ruling on the basis of law. A Permanent Court of Arbitration was created in 1907, based on the Arbitration Convention established by the Hague Convention (I) for the Pacific Settlement of International Disputes (29 July 1899).
Neither States nor international organizations are under any obligation to use this method to settle their disputes. If they do so, as mentioned before, they choose their own “judges” (the arbitrators) as well as the procedure and, in some cases, the applicable law. The arbitration itself is based on principles of law but also at times on notions of fairness. Hence, this procedure meets the requirements imposed by the notion of State sovereignty, since it leaves States at liberty to decide when and under what conditions to accept a limitation on their own powers for the sake of settling a dispute.
The UN Security Council may also contribute to the pacific settlement of disputes by inviting parties to submit disputes that are of a legal nature to arbitration or to action by the International Court of Justice (Arts. 33, 36 of the UN Charter).
For Additional Information: Brownlie, Ian, and Surya Prakash Sinha. “The Peaceful Settlement of International Disputes in Practice: Blaine Sloane Lecture.” Pace International Law Review (Spring 1995): 257.
Caflisch, Lucius, ed. The Peaceful Settlement of Disputes between States: Universal and European Perspectives . The Hague: Kluwer Law International, 1998.
Orrego, Vicuna Francisco. “A Perspective of Dispute Settlement Arrangements for the Twenty-first Century.” In A Century of War and Peace , edited by Thomoty L. H. McCormack, 43–57. Boston: Kluwer Law International, 2001.