International Arbitration

International Arbitration

International arbitration is a tried-and-tested method of resolving disputes between companies or individuals not based in the same country. With a neutral tribunal – not bound by either party’s national courts – this approach provides a single, unbiased forum to resolve international disagreements. The neutrality of arbitration makes it a popular option for dispute resolution. In addition, when done right, international arbitration is easy to enforce globally.

Nevertheless, getting to grips with the minutiae of international arbitration can be difficult. And, if you are considering this dispute resolution method, it is easy to get overwhelmed by the terminology involved. At Summit Law, our expert lawyers make sure you are fully informed at every step of the process. In this handy guide, we have set out everything you need to know about international arbitration, including what it is, the benefits, and when you need to start planning.

What is international arbitration?

In simple terms, international arbitration is a way of resolving cross-border disputes. An alternative to court litigation, arbitration has become the preferred choice for many businesses. Not least because it provides a final and binding decision and an impartial tribunal for the dispute (without either side having a home advantage).
This section sets out some of the common terminology and key legal phrases you will need to know when considering international arbitration.

Arbitration agreement

Before the process starts, the parties involved will agree on the process to be followed, the arbitrators, the legal seat, the language to be used, the parameters for the award, and anything else that might be relevant. This will be set out in an arbitration agreement.

Arbitrators

International arbitrations are managed by arbitrator(s). These arbitrators are usually experts/lawyers with significant experience in, and understanding of, the dispute being considered.

“The quality of arbitration proceeding depends to a large extent on the quality and skill of the arbitrators chosen.[1]”

The disputing parties can select the arbitrator (called a tribunal where there are a panel of arbitrators). They can choose one each, or if three are appointed, each party might make one nominee, with the third selected by a relevant institution. Amongst others, key international arbitration institutions include:

  • The International Chamber of Commerce (ICC)
  • The London Court of International Arbitration (LCIA)
  • The Arbitration Institute of the Stockholm Chamber of Commerce (SCC)
  • The Singapore International Arbitration Centre (SIAC)
  • The Hong Kong International Arbitration Centre (HKIAC)
  • The China International Economic and Trade Arbitration Commission (CIETAC).

Appointing a sole arbitrator is less expensive than using three. However, this means that each party cannot nominate an arbitrator of their choice. If only one expert arbitrator is chosen, one of the above institutions (an appointing authority) might make the selection. In more complex cases, three arbitrators are recommended to ensure the necessary level of strategic thinking, debate, and consideration.

If you are about to start international arbitration, we can advise you on suitable arbitrators.

Legal seat

When parties agree to enter arbitration, they decide on a ‘legal seat’. This seat is a city like London, Hong Kong, or Berlin. The seat isn’t necessarily where the arbitration will physically take place. Instead, it establishes the procedural laws which will apply. For example, a London-seated tribunal will apply English law.
However, national law does not necessarily apply when it comes to an international arbitration ruling. So the chosen legal seat does not mean that the final award will reflect the laws of the location (although it might). Instead, the law of the seat determines how supportive the national courts will be when it comes to the arbitral process and its autonomy.

In the best-case scenario, once a commitment to international arbitration is made, a national court will refuse to get involved in the dispute, other than supporting the process as needed. And, once the arbitrator/tribunal has ruled, the disputing parties’ national courts will uphold this decision and enforce it where necessary.

Legislative framework

While, for the most part, the arbitration agreement will establish the procedural rules, the chosen seat will likely have legislation that governs any arbitrations in its state. This legislation offers an established procedural framework while addressing anything that might have been overlooked in the agreement. Many countries have based their laws on the same model to keep the arbitration process consistent.

UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, is “designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice having been accepted by States of all regions and the different legal or economic systems of the world.”

The hearing

At the arbitration hearing, both parties are given the opportunity to present their case and provide evidence to support their position. They don’t necessarily have to attend the hearing in person. In some cases, if preferred and depending on the dispute, each party can submit their case on paper.

The award

The decision in arbitration is called an ‘award’. The tribunal/arbitrator will make an award following a hearing. Generally, the award is provided in writing and sets out the reasons for the decision. Arbitrators might make their awards according to an applicable law. However, if both parties agree, the arbitrators can make their ruling according to what they perceive to be fair, regardless of any national laws. The arbitration agreement will establish how the award will be made and any laws (if any) that need to be followed.

Our approach to international arbitration

At Summit Law, we understand that business disputes are unavoidable. As such, we prevent and resolve conflicts through in-depth, tailored, and practical legal advice. Our counsel is always designed to suit your unique requirements, with a focus on your personal strategic and commercial objectives.

Our commercial litigation solicitors can help with a range of dispute resolution options, from negotiation and mediation to a vigorous courtroom strategy. Experts in alternative dispute resolution (ADR), we have an in-depth understanding of the methods that can be deployed to solve any conflict without court proceedings. And, when it comes to cross-border disputes, we can guide you through the international arbitration process.

Crucially, we always advise you on the method of dispute resolution which puts you in the strongest possible position. Proud of the results we have achieved for our clients, whether your claim is for unpaid invoices, misrepresentation, breach of contract, fraud or more, we can advise on international arbitration rules and procedures, choosing arbitrators, and the choice of seat.

Difference between arbitration and litigation

The key difference between arbitration and litigation is that the former is a form of ADR, whereas the latter involves going to court. But there are some other crucial distinctions.

  Litigation Arbitration
Decision-maker A state-appointed judge. The arbitrator (or tribunal where there are a panel of arbitrators) is selected by the disputing parties or a relevant institution. These arbitrators will likely have in-depth expertise in the disputed issues, sector, technicalities, etc.
Law The law of the country where the dispute takes place. The law as chosen by the disputing parties.  Alternatively, the award can be made according to what the arbitrators perceive to be fair, regardless of any national laws.
Processes As set out by the courts where the dispute is being heard. As agreed by the disputing parties and the legal seat.
Timescale Can be lengthy. Especially when points of law are challenged, or an appeal is made. Can be quicker than litigation with agreed timetables, fast-track options and a binding decision (in most cases).
Right of appeal The appeal process depends on the jurisdiction involved. Most international arbitral awards cannot be appealed, although there are some exceptions to the rule.
Privacy Likely to be heard in public. * In most cases* arbitration, the fact it is happening, and the award can be kept private.
Enforceability Can be difficult to enforce if no reciprocal arrangement exists between countries. A legal framework does exist to govern cross-border disputes between countries within the EU. This provides for reciprocal enforcement of judgments, choice of governing law and jurisdiction clauses. Bound by the New York Convention which is ratified and enforced by over 160 countries.
Cost Can involve significant legal fees depending on the nature and time needed to resolve the dispute (including appeals). There are also court fees to consider. Both parties must pay legal fees, the arbitrators, the hearing venue, and other costs. Can work out to be less expensive than a long-drawn-out court battle.
* Jurisdiction dependent

Key features of international arbitration

As discussed, several key characteristics establish why international arbitration is such a popular option. In this section, we look at these features in more depth.

Neutrality

Arbitration provides a neutral forum to resolve a cross-border dispute. To support this neutrality, in some cases, arbitrators of different nationalities will be appointed to the tribunal (including one from the jurisdiction of each party). For the most part, the appointed arbitrators have the freedom and scope to control the process and the award (although the chosen seat will have some input).

Choice

Unlike litigation, both parties have significant input on how, where, and by whom their dispute is resolved. Two of the most critical elements of choice refer to the arbitrators and the seat, but even things such as the language used can be set out in the arbitration agreement.

Expertise

When pursuing commercial litigation, a dispute will be heard by a state-appointed judge who may not have a complete understanding of the technicalities involved, especially in more complex matters. But, with international arbitration, the appointed arbitrators tend to be leading experts on the issues/dispute/sector under consideration.

Privacy

Arbitration is particularly appealing to businesses because of the confidentiality it can offer. Hearings tend to be private, with the evidence kept confidential. The parties can also make sure that the arbitrators do not disclose any information. However, if parties want to guarantee confidentiality, they should add a relevant clause in their arbitration agreement. In comparison, court documents and hearings are generally public.

Limitations

If a dispute is made through litigation, it is not unusual for a third party to join the process. In addition, disputes may be consolidated and heard before a court judge. However, it is more challenging to do this with arbitration (although not impossible). In general, when it comes to an existing arbitration, all parties must agree before any other parties, or related disputes can be added.

Certainty

Due to international conventions, most arbitration decisions cannot be challenged except in very specific and limited circumstances. As such, the parties involved do not have to face a lengthy and costly appeal. Situations where a state might refuse to enforce an arbitration award include where:

  • One or both of the parties involved were incapacitated
  • The proper process was not followed
  • The arbitrators were different to those agreed
  • The award does not fall under the agreed scope of the arbitration agreement
  • The award cannot be met under the law of the legal seat
  • The award would conflict with public policy.

Ease of enforcement is another crucial advantage of arbitration. Indeed, the certainty given by arbitration often makes it the avenue of choice for international contract disputes. However, to ensure the arbitration decision is enforced correctly, the chosen seat must have ratified the New York Convention. Over 160 countries are bound by this international treaty which ensures the reciprocal enforcement of arbitration awards. Some seats are better than others regarding their obligations under the Convention. Our legal experts can advise you on the best seat for your international arbitration to ensure your decision is upheld.

Simplicity

Arbitration tends to be a more straightforward process than going to court. The parties agree to the rules in advance, so everyone understands what will happen and when.

When should provision for arbitration be made?

In an increasingly regulated world, commercial disputes are often unavoidable. Different jurisdictions can make conflicts particularly challenging, especially where complex issues are involved. As such, while international arbitration is something businesses may look at after a dispute arises, it makes more sense to be prepared.

One of the most interesting differences between arbitration and other forms of dispute resolution is that companies often agree on the arbitration process when a contract is entered into and long before a dispute happens. This is a best-practice approach to dispute resolution as, at this stage, both parties tend to be more open to agreement.

An agreement to arbitrate is usually done by inserting a clause into the principal contract between parties. This clause will establish an obligation to resolve any disputes arising out of, or in connection with, the contract via arbitration. The clause might even set the seat, language, number of arbitrators and the procedural rules to govern any future award.

At Summit law, we believe businesses should consider international arbitration every time they enter a contract with an overseas company. Where required, we draft expert and effective arbitration clauses to give our clients peace of mind should a dispute arise.

What is the importance of international arbitration?

International arbitration is vitally important as it empowers parties from different countries – with different languages, legal systems, and cultures – to settle their disputes in a final and binding way. That’s in addition to all the other benefits already set out in this guide. And, unlike domestic court judgments, international arbitration awards can be applied across the globe.

In a worldwide marketplace, with companies doing business across the globe, international arbitration has never been more critical. So it’s no surprise that its popularity has grown with globalisation.

The ICC International Court of Arbitration recorded a total of 946 new arbitration cases in 2020 – the highest number of cases registered since 2016, when a complex cluster of small disputes effectuated a marked increase in the statistics[2].

How does arbitration work?

Alternative Dispute Resolution (ADR)

Arbitration can be described as a form of ADR. Another method of ADR includes mediation, where parties meet in a neutral location with an unbiased third party known as a mediator to negotiate a settlement. Mediation can be useful as it focuses parties’ minds, allows them to be involved in negotiating their own agreement, and can save a huge amount of time and cost for everyone involved. However, with mediation, both parties must come to an agreement, and mediators cannot order the other side to disclose documents. In addition, mediation is a non-binding form of ADR unless formalised by the court.
On the other hand, arbitration sees impartial arbitrator(s) make a final and binding decision to settle a business dispute. As such, arbitration is a very effective alternative to litigation when you want to resolve a dispute for good without involving the court.

Institutional or ad hoc arbitration?

There are two kinds of arbitration – institutional and ad hoc.

With institutional arbitration, the parties follow the rules of a specific institution, for example the ICC, LCIA, DIAC or DIFC. The institution can be set in a pre-agreed arbitration clause or later when a dispute arises and no such clause exists. The appointed institution will administer the arbitration according to set rules and procedures.

Ad hoc arbitration is not administered by an institution. Instead, the parties involved establish the number of arbitrators, who these arbitrators are, the applicable law and procedures, etc. Ad hoc proceedings tend to be flexible, quicker, and less expensive than institutional proceedings. However, even in the ad-hoc process, the parties can still appoint a qualified arbitrator from one of these institutions (known as an appointing authority). The parties may also appoint a relevant institution to administer their arbitration under established rules (e.g. The United Nations Commission on International Trade Law (UNICITRAL) Arbitration Rules).

Typical steps for international arbitration

 The arbitration process is not necessarily the same in each case. Depending on the legal seat and the rules/processes being followed, some of the following steps might take place simultaneously or in a different order. In some cases, the arbitral tribunal might also take pre-emptive action (e.g. issuing an order freezing assets before the tribunal).  But the following steps explain a typical international arbitration:

Initial paperwork

A claimant makes a Request for Arbitration/ Notice of Arbitration. This request should include a summary of the dispute, the parties involved, the claim(s) being made, and the resolution sought. It will also contain the claimant’s choice of arbitrator(s) and preferred seat and language.

Once the arbitration process has started, the respondent has a short period to file their Answer to the Request for Arbitration. This Answer will include their initial response to the claimant’s request, including the choice of arbitrators, law, and language. The document will also list any counterclaims the respondent is making. This is not an in-depth response, so supporting documents are not always provided at this stage. If appropriate, the claimant will then provide a reply to any counterclaims.

Pre-tribunal planning

Once the initial paperwork has been served, the tribunal will be appointed. The parties are generally free to agree on the size, structure, and method of appointment of the tribunal. However, if one of the parties attempts to frustrate the process, or the parties fail to appoint the arbitrator(s), these will be selected for them by an appointing authority (unless both parties agree to an extension).

After the tribunal is established, an initial pre-hearing conference will take place (usually over phone/video call) to set out the steps and timetable for the arbitration. When the parameters are set, the discovery phase takes place. During this phase, both parties collate as many documents, witnesses, and other evidence as needed to present their case at the final hearing.

Pre-tribunal paperwork

The claimant will provide a complete statement setting out their case in detail (if not served with the initial Request for Arbitration). The respondent will then provide their complete defence and counterclaim, and the claimant will respond with their defence to this counterclaim (if relevant).

At this stage, both parties will disclose any documents they are relying on to make their respective cases. They may also have to disclose relevant information requested by the other party (but the type of documents that can be requested is limited). The parties will also have to exchange any witness statements, and rebuttal witness statements might follow.

The hearing/award

A hearing will consider the dispute. This tribunal could take place in a few hours, a day, a week, or even longer.  The arbitrators might request additional information as part of this process. Some hearings take place on paper, whereas others require the parties to attend and make statements. After everyone has had their say, the arbitrators/tribunal will consider the case and make an award.

The decision might be made in a day, or it could take considerably longer depending on the complexity of the issues involved. It might be possible to appeal the award depending on the terms of the arbitration agreement.

In more substantial cross-border disputes, the international arbitration process could take over a year. However, most cases can be resolved much quicker. Ideally, the award should be delivered within six months. Most arbitration processes are flexible and designed to meet the circumstances and needs of those involved.

Is arbitration a better option than going to court?

When a dispute happens, it must be resolved as quickly and effectively as possible to minimise the disruption to those involved. Commercial litigation is one option that can be used to resolve a dispute. But it becomes more complex when international issues are involved. Of course, arbitral tribunals have no inherent power or jurisdiction when it comes to commercial disputes. As such, some companies prefer traditional litigation. However, because of the provisions of the New York Convention, once an arbitration award is made, the relevant jurisdictions should enforce it if necessary. As such, in most cases, arbitration awards are more straightforward to enforce internationally than court judgments.

Regardless of the benefits, arbitration is not suitable for every situation. And there are cases where an aggressive court-based strategy is required. Some businesses prefer the procedural safeguard of an appeal, so avoid arbitration due to its final and binding nature. However, if an agreement to arbitrate is written into a contract, this might make going to court impossible. At Summit Law, we provide specialist legal advice to ensure you understand the options available to you.

Contact our international arbitration lawyers

At Summit Law, we have extensive experience settling commercial disputes and international arbitration. This includes cases seated in the UK and across the world. We can help draft arbitration clauses in new commercial contracts, advise on the appointment of arbitrators, and steer you through the process to ensure the best possible outcome.

Where we do not believe that international arbitration is right for you and your business, we can also help with other dispute resolution methods such as mediation and litigation. With an eye on your bottom line, we ensure any disputes are resolved as quickly and cost-effectively as possible.

Our expert solicitors provide legal services for individuals and businesses in London, across the UK, Europe, South America, and the USA. To find out more, contact us today on 020 7467 3980 or email info@summitlawllp.co.uk and learn more about how we can help you.

 

[1] J. D. M. Lew, L. A. Mistelis & S. M. Kroll, Comparative International Commercial Arbitration, at

232 (Kluwer, 2003)

[2] https://iccwbo.org/media-wall/news-speeches/icc-announces-record-2020-caseloads-in-arbitration-and-adr/

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