Resolving disputes fairly and efficiently between parties in different legal jurisdictions poses a host of practical challenges and substantial risk that requires considered management. International arbitration, though constantly evolving, is broadly recognised as a proven and effective vehicle for bridging divides between legal systems and achieving resolution and enforcement in over 150 states worldwide.
International arbitration is a creature of contract, whose identity is defined by consent and party autonomy. Thus parties are free to agree how their disputes are resolved and what that process should look like.
Public interest safeguards are provided - to a lesser or greater degree depending on jurisdiction - in the form of domestic legislation supported by local courts. At an international level, enforcement is by convention, in most cases the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention").
Alongside a presumption of confidentiality, arbitration offers parties flexibility and choice. Parties can opt for institutional, administered arbitration, or manage the process themselves in a so-called ad hoc procedure.
Likewise, parties are free to appoint the tribunal of their choice to suit the subject matter of the dispute, choose the place of arbitration, the language, the number of arbitrators, governing law, and whether the arbitrators are to decide the matter legalistically or on an equitable basis as an "amiable compositeur".
All of the above demand consideration at the contract drafting stage.
In recent years, there has been a trend towards greater use of institutional arbitration and away from unadministered and ad hoc proceedings.
Institutional arbitration offers numerous advantages in respect of controlling the process to the advantage of the parties. These include offering pre-established rules and procedures, which ensure that the arbitration proceedings begin in a timely manner; providing administrative assistance, often from a secretariat or court, and a list of vetted, experienced, and qualified arbitrators to choose from; assisting in encouraging reluctant parties to proceed with arbitration; and offering an established format with a proven record.
Institutions are also on hand to provide assistance and advice to the parties. Without such a facility parties would be dependent on the court of the seat of arbitration – at further cost and expense - for assistance with taking the arbitration forward.
In selecting an arbitration institution, there are numerous factors to consider, including administrative fees (which vary from institution to institution), whether bureaucratic oversight may help or hinder progress, and whether the institution’s rules provide for realistic timeframes for parties to respond.
The advantages of ad hoc arbitration are principally concerned with cost, and the process is therefore typically thought more suited to smaller claims. It offers greater flexibility than institutional arbitration, enabling parties to agree on the procedure themselves. The downside, of course, is that cooperation between opponents is not always forthcoming in the context of a dispute. Likewise, where language and cultural differences are a factor, misunderstandings on procedural points can add to delays and ultimately cost.
Although ad hoc arbitration is more flexible and often best suited to the parties' individual needs, it generally considered to be cost-effective only where the following exist:
The seat or place of arbitration is a major consideration. The implications are broader and more significant than agreeing a mutually convenient location. The arbitration will be governed from a procedural standpoint by the law of the seat, and therefore parties are therefore advised to seek a seat with a stable, pro-arbitration judiciary and a track record of enforcing arbitral awards. Ideally, the chosen state should be a signatory to the New York Convention and demonstrate a record of enforcing New York Convention cases. To do otherwise might risk unnecessary difficulties and even risk non-enforcement of the award.
Where claims of significant quantum or complexity are foreseen, three or more arbitrators remains the norm. In rare cases where more than three arbitrators are desired, an odd number is recommended to avoid deadlock.
Consistent with arbitration's promise of an expert tribunal, parties may specify particular qualifications desirable from the arbitrators. This might require a retired judge from a particular court or a lawyer with ten years' experience in a particular area of practice; alternatively, it might require proficiency in a particular language.
Parties should take care not to be overly specific and thereby narrow potential choice. Likewise, contracts naming a particular individual to serve as arbitrator can prove highly problematic for obvious reasons.
An obvious but sometimes overlooked question is that of language. Specifying the language of the arbitration in the dispute resolution clause can save time and potential acrimony later. The costs of failing to do so are sometimes paid in fees for simultaneous translation or the difficulties of a bi-lingual proceeding.
Confidentiality is presumed in international arbitration, but parties are advised to check applicable institutional rules. For example, JAMS International Rules Article 7 provides that unless expressly agreed otherwise by the parties, (or unless otherwise required by law) the Tribunal, the Administrator and JAMS International will maintain the confidentiality of the arbitration. Likewise, the award will remain confidential barring consent from all parties to its publication.
It is sometimes erroneously believed that the law governing the arbitration agreement is the same as the law of the contract. This is not always the case. The doctrine of separability provides that the arbitration clause is a contract in its own right, and it is therefore possible for the arbitration to be governed by a different law to that of the substantive contract. For the avoidance of doubt - and expensive satellite proceedings to make such a determination - parties are well advised to specify governing law in the arbitration clause.
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