Should international arbitration be the dispute resolution method of choice for international companies?

December 2017 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

The exponential growth in international commercial arbitration has been fuelled by the realisation that many global commercial disputes are better resolved in neutral countries by neutral arbitrators, rather than in national courts by national judges. What, then, is the basis for this pivot toward an increase in the use of international arbitration as a means of resolving disputes and what are the advantages for global business? There are several reasons.

Neutrality

The national court of a contractual party is unlikely to be a venue acceptable to the other party to resolve its dispute. The choice of a neutral seat or place of arbitration, where the courts of that neutral country stand behind arbitration, is likely to give more confidence to both parties of a fair, just and impartial result. The choice of seat is a critical one, but there are several traditional, as well as new regional centres, which can provide the necessary facilities and, more importantly, a light touch judicial underpinning of the arbitral process.

The tribunal

Historically, an important selling point of international arbitration has been the ability of each party to choose its own arbitrator, or at least the arbitral institution through which it is chosen, and, as such, to have an indirect input into the make-up of the tribunal, although all arbitrators should be independent and impartial. The impact of this can be limited because the appointee is only one of three. The composition of the tribunal is unpredictable, and can vary comprising different nationalities, legal experiences, cultures and so on. This is particularly the case when the parties and their lawyers are less familiar with the process and the potential pool of experienced arbitrators, resulting in less experienced arbitrators being chosen. The most critical part of the tribunal triumvirate is usually the president or chair, which is sometimes chosen by the party appointed arbitrators, sometimes by arbitral institutions. Cognoscenti will ensure that their party has input into the appointment of the chair. However, the perceived value of input into the overall make-up of the tribunal remains important.

Privacy

While arguments persist as to the extent of the confidentiality of arbitral proceedings in the absence of an express confidentiality agreement, the fact remains that the proceedings are private and the parties’ dirty washing does not appear in the newspapers on a daily basis, affecting both their reputation and their share price. Commercially, this is seen as an important attribute of international arbitration.

Process and cost

The parties can have the same access to the same high quality lawyers as they would in the courts. However, the process is bespoke, tailored to the particular case, and hearings are considerably shorter and tend to be heard more quickly than court cases, despite there being live witnesses and cross-examination. Given the sums sometimes involved in some of the cases, and the finality of the result, the legal costs may be very high and often not that much less than court cases.

The New York Convention

Arguably the most important reason for parties choosing arbitration is the almost universal acceptance of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) by countries around the world, now numbering in excess of 150 signatories. The NYC provides a simple and straightforward way to enforce awards without the complications often involved in trying to enforce judgments. The scope for challenging a binding award is strictly curtailed and it is usually only jurisdictional questions, procedural fairness and some public policy issues which give rise to any realistic prospect of success. An award cannot be challenged on the merits and so, in most cases, arbitration provides a one stop shop enabling finality to be given without the possibility of various levels of appeal. Such finality can be commercially advantageous as drawing a line under disputes.

National courts versus international arbitration

Corporations, in deciding whether to use national courts, even a neutral court with a neutral law, will bear the above in mind when balancing the scales of where to sue. For while the above reasons may explain why there has been such huge growth in international arbitration, it does not answer the question of whether this process is right for all disputes. The answer is, of course, that it is not.

One of the deficiencies of arbitration is the absence of any precedent, which, together with uncertainty as to the nature and make-up of the tribunal, can mean that the result may be more unpredictable than a national court where not only is there a body of case law to follow, but also the judges and their likely reactions tend to be known by those who appear before them. This does not mean that arbitral tribunals do not apply national laws where applicable, but the application of the facts to the law can be more nuanced given the make-up of a particular tribunal.

Another aspect of arbitration relied upon by its detractors is the absence of any appeal on the merits if the tribunal gives an unexpected result. Parties have only one chance of success or failure. The decision is final and binding on the merits and, as stated above, can equally be viewed as an advantage – often depending on whether the party is on the winning or losing side.

Cases involving detailed legal analysis of a national law might be perceived to be better resolved in the national courts. Nor is arbitration necessarily the appropriate forum for determination of points of legal principle which are for future invocation in other related situations. Neutrality can be achieved by giving exclusive jurisdiction to a neutral judicial forum or using a neutral governing law for the dispute.

Dispute resolution clauses are often the last thing on parties’ minds having successfully negotiated a deal. But experience shows that commercial relationships break down. Parties, therefore, should carefully consider the pros and cons of alternative forms of dispute resolution. Multi-tiered dispute resolution clauses with provisions for prior negotiation or mediation are likewise common. The above sets out some of the key concerns that should be considered when determining the appropriate form of, and forum for, dispute resolution. However, there is no doubt that international arbitration, despite some limitations, is increasing in popularity as the globalisation of business also increases. For a large body of international commercial disputes, the attraction of neutrality, finality, privacy, speed and enforcement available in international arbitration outweigh any perceived disadvantages.

Hilary Heilbron QC is counsel at Brick Court Chambers. She can be contacted on +44 (0)20 7379 3550 or by email: hilary.heilbron@brickcourt.co.uk.

Hilary Heilbron QC

Brick Court Chambers