Because we live in an imperfect world, disputes regarding the performance of contractual and legal obligations will occur. The growth in the volume of international transactions will lead to a corresponding increase in the number of international commercial disputes. Companies involved in cross-border transactions therefore have a great interest in reaching resolutions that can be enforced and mitigating any damage that has already been done.
Without an arbitration clause or agreement, the parties to a dispute must resolve it through litigation, often in a foreign court and a foreign language. The plaintiff can file a lawsuit where the defendant has personal jurisdiction. Generally, personal jurisdiction exists where the defendant has their seat or place of business, at the place of performance or where the defendant has assets. Some countries, such as the United States, Canada and China, even have long-arm statutes. But a judgment from one jurisdiction often is not enforceable in another. And there is always the risk of home-court bias.
Therefore, companies prefer to resolve international commercial disputes by arbitration. Here are ten reasons why:
- Foreign arbitral awards are enforceable.
Foreign arbitral awards are enforceable in at least 172 countries under the New York Convention or, if applicable, the Inter-American Convention on International Commercial Arbitration. Convention countries are obliged to enforce foreign arbitral awards except for seven reasons, which are stipulated in Article V of the relevant convention.
- Proceedings are conducted in an agreed-upon language.
Arbitration proceedings are generally conducted in the language the parties agreed upon; e.g., the language in which the contract was negotiated and signed. This permits all parties to review the briefs and fully participate in the whole proceeding, including the oral hearing, thereby avoiding the cost of translation. The arbitral tribunal can decide the dispute based on the original agreement and correspondence, not on translations.
- The proceedings can be tailored.
The parties can tailor the procedure and methods to fit their needs. This includes all aspects of the procedure as long as such agreement does not violate the fair and equal treatment of the parties and the mandatory provisions of the governing arbitration law at the chosen seat of arbitration.
- The proceedings are private and confidential.
International commercial arbitration proceedings are private and not open to the public or third parties, unless the parties agree otherwise.
Most parties want their commercial arbitrations to be confidential. However, if the applicable arbitration law or the arbitration rules chosen by the parties do not stipulate confidentiality, commercial arbitrations are not confidential unless the parties concluded a confidentiality clause or agreement; with an confidentiality clause, the arbitration proceeding—including the names of the parties, counsel and arbitrators; the request for arbitration; the briefs; the exhibits; the transcript of the oral hearing; and the award—will be confidential except for enforcement or setting aside proceedings in court.
- Parties can select arbitrators with specific knowledge.
In arbitration, generally, the parties can select knowledgeable and experienced people as arbitrators. In litigation, however, judges are assigned to a case and may either be very experienced or have no specialized knowledge or experience in international commercial contracts. The success of international commercial arbitration is also based on the confidence companies have in the quality of arbitrators. The ability to select the decision-maker is one of the reasons many companies prefer arbitration over litigation. The arbitrators must be impartial and independent. The International Bar Association’s (IBA) Guidelines on Conflict of Interest in International Arbitration are often applied by national courts reviewing whether there was or is a conflict of interest.
The parties can agree whether the dispute shall be resolved by one arbitrator or by three arbitrators. One arbitrator is less expensive than a tribunal with three arbitrators; however, an arbitral award is generally a final decision that cannot be appealed. Therefore, many companies prefer a tribunal of three arbitrators because this reduces the risk of a mistake because six eyes may see more than two.
- Arbitrators will take the time to hear the case.
One of the big advantages of arbitration is that arbitral tribunals will take the time to study and hear the case. This is a big distinction from court proceedings; in many countries, courts are very busy and do not have the time to fully understand the case and to read all the briefs and exhibits. In many countries, court proceedings may last for a few hours only; in arbitration, the parties can fully present their case and make sure that the tribunal understands the dispute.
- A neutral venue can be selected as the seat.
The parties can choose a neutral venue. By the selection of the seat, the parties determine which arbitration law will be applicable and which courts may be later in charge of a possible procedure to set aside the arbitral award.
- Discovery of documents is limited.
In contrast with U.S. litigation, international commercial arbitration allows limited discovery of documents only. Often the arbitral tribunal shall be guided by the IBA Rules on the Taking of Evidence in International Arbitration. The discovery request shall be specific, narrow, relevant to the case and material to its outcome.
- Arbitral awards are final.
Generally, an arbitral award is final. There is no appeal. Even a court that is asked to set aside an arbitral award will not fully review the decision (no révision au fond), only whether the special reasons for setting aside an award are met.
- Arbitrations can be efficient and cost-effective.
An international commercial arbitration can be quicker (and thus less costly) than court litigation with its appeal procedures. But parties can delay an arbitral proceeding in many ways for example by asking for much more time to prepare briefs than would be permitted in a court proceeding. The parties control the process and can make the arbitration efficient and cost-effective.
