Since foreign economic activity is grounded on contracts, companies may face, for example, improper performance by the counterparty, so it is crucial to think ahead of time how and where disputes will be concluded. Arbitrage emerged as a way to preserve the relationship betwixt the two companies and resolve the dispute peacefully.
The right advice on containing optimal international arbitration arrangements in commercial transactions can yield dividends not only in terms of ultimate success in a full-scale dispute, but also in terms of negotiating and settling controversies with the best possible outcome for you. In view of the many variants of arbitration institutions, location and applicable law, it is recommended that assistance in the arrangement of transnational disagreements be sought.
This article gives you general information about what arbitration is and its features.
What is international arbitration?
International arbitrament examines any case or potential controversy betwixt two or more participants, usually located in different countries, and is considered the most common alternative dispute resolution method (ADR). These types of proceedings often arise from provisions included by companies in the commercial contracts. In this case, the participants shall refer the controversy to the assigned person (arbitrator) or panel of arbitrators (tribunal). This is achieved by including an article in the treaty (arbitration agreement). Thus, if a business dispute occurred among them, they were forced to settle the dispute by arbitration rather than by traditional judicial procedure.
The essential difference between arbitrage and mediation is that no counterparty can unilaterally quit arbitrament. The participants may choose the venue and language of the processes, the applicable law, to ensure that no party would have an undue advantage.
Arbitrage offers a compulsory solution of disagreement by an order that can be imposed internationally sticking to the New York Arbitration Convention (approved by more than 160 countries). The types of cases dealt with in transcontinental arbitrage are typically cross-border commercial disagreements arising between participants in joint ventures or corporate transactions (including M&A). One specific form of international arbitration is «investment arbitration», where a foreign investor brings an action directly against the host State in which it invests.
What are the upsides of arbitrage?
Law professionals often counsel clients to opt for either judicial or arbitral ways of disagreement solution that position them favorably in the event of a conflict. Both lawsuit and arbitrage present distinct upsides and downsides determined by the conditions, especially pertaining to the location of the contracting participants or their estate.
The key upsides of arbitration were simplicity of execution, procedural flexibility and privateness. Transnational arbitration provides flexibility in procedures and rules of evidence, flexibility as to who will determine the disagreement, easier realization worldwide in compliance with international conventions. Impartiality is also an essential argument in favor of arbitrament.
International dispute settlement
The selection of the arbitrage venue holds paramount importance. It determines the legal structure for the arbitrage, the degree of sustention from regional courts, and the enforceability of international awards. Prominent choices for transnational arbitration venues comprise London, Singapore, Hong Kong, Paris, and Geneva.
Our team has extensive expertise in transcontinental arbitrament with all major institutional and procedural stipulation comprising AAA, CIETAC, DIAC, HKIAC, ICC, ICSID, LCIA, SCC, SIAC or UNCITRAL.
Institutional or ad hoc arbitration: what is it?
In the realm of arbitration, parties must decide whether to adopt institutional or specialized arbitration, with the procedural instructions guiding its course, especially in the initial stages.
Choosing institutional arbitration entails integrating the regulations of a designated institution into the arbitration clause. The chosen institution would then oversee the administration of the arbitration. Organizational requirements are crafted to meticulously outline the procedural system from inception to conclusion, making them well-equipped to address unforeseen challenges that may emerge. This proves particularly valuable in instances where one side is uncooperative within the arbitrage process.
Institutional arbitration exist in multiple locations globally. Some of the most well-known and trusted are:
London International Court of Arbitration, International Chamber of Commerce, Arbitration Institute of Stockholm Chamber of Commerce, Vienna International Arbitration Center, German Institute of Arbitration, Swiss Court of Arbitration.
Ad hoc arbitration operates independently without the assistance of a centralized establishment, relying entirely on collaboration between the involved parties for its efficacy. It adheres to directives tailored for the specific disagreement, excluding the participation of any arbitrage establishment. The sides may craft their own arbitration rules, but it's common for them to either entrust the formulation of directives to the arbitrators or adopt established instructions designed for specific arbitrage, as the UNCITRAL directives. Notably, certain judicatures exclusively recognize institutional arrangement over ad hoc arrangements.
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Fundamental factors of International Arbitrage
Arbitrament functions as coordinated and free-willing procedure. In contrast to domestic courts, the arbitral tribunal's authority is established only when all parties involved willingly decide to settle their controversies through arbitrage. Generally, parties express this agreement by incorporating a well-drafted arbitration article into their contractual arrangements.
The concerted type of arbitrage has a notable implication: arbitrators typically lack the power, unlike court judges, to include additional participants in the disagreement resolution process or to merge relevant arbitration proceedings. Although arbitral establishments have amended their specifications to tackle this issue, adding a third party or unifying two disputes in arbitration may still present greater challenges compared to court proceedings. In specific circumstances, court jurisdiction may allow the inclusion of third-party defendants in a trial without their agreement.
Arbitration may offer to settle controversies in a neutral forum. While the courts may play a role in assisting and supervising the process, arbiters usually determine the process to be followed and the substance of the controversy. Tribunals are often composed of arbitrators of various nationalities, which strengthens the neutrality of the arbitrament.
The arbitrament participants had significant flexibility in deciding the manner, location, and language for settling their dispute. The selection of the decision-maker holds particular significance for the involved parties. In contrast to commercial lawsuit, where State-assigned judges handle lawsuits, arbitrage allows the participants to decide on their arbiter. This proves especially beneficial in situations involving technical matters requiring specialized competence or when the participants originate from different domains, allowing each to designate an arbitrator from their respective countries.
Arbitration holds special appeal for commercial entities due to its potential for confidentiality. Typically, sessions take place in private (in camera). The sides can mutually agree that all proceedings, proofs, and any related materials generated or revealed during the arbitration process will be treated as confidential. This agreement extends to a commitment from the participants and arbiters not to disclose any records pertaining to the arbitrament. In contrast, court procedures and files are usually open to the society.
The simplicity of execution of arbitral resolutions was seen as a significant upside of arbitrament. Realization is streamlined by the New York Convention. A Contracting State is under an obligation to make resolutions ultimate and to execute them in compliance with its procedural directives.
International dispute settlement: how to initiate the settlement process?
Transnational arbitrage serves as a consensus-driven approach for settling business disputes, typically designed to streamline the procedure and lower costs in comparison to resolving dissensions through court proceedings. While there are notable exceptions, arbitrage is usually perceived as a more informal alternate to litigation, aiming to facilitate a more efficient and time-saving resolution of dissensions.
At the beginning of the processes, one side shall notify the other of its intention to arbitrate, informing them of the nature and basis of the proceedings. The other party would then be given time to respond in writing indicating whether or not they agreed to arbitrate the dispute. Once it has been determined that the controversy will be resolved through arbitration, the process itself, grounded on the rules and procedures determined by the participants or as specified in the contract, will begin.
The parties present their arguments to the arbiter, call witnesses, and present evidence to endorse and defend their respective cases. Subsequent to conclusion of the session, the arbiter or panel is granted time to deliberate and issue a resolution. The Tribunal's primary functions include adopting appropriate procedures for a specific case and guaranteeing that time and costs are used judiciously. The conclusion is deemed conclusive and mandatory, with limited rights for challenge. For additional details on preparing arbitrage agreements, please reach out to our experts.
Conclusions
Globalization of world markets has opened up unlimited business opportunities. However, it has also increased the likelihood of business controversies. Arbitrament has proved to be an appropriate way to deal effectively with business controversies and to resolve the conflict peacefully in a way that benefits both parties. However, this complex mechanism requires extensive knowledge to achieve the required results.
Arbitration had the upsides of being flexible and able to resolve disputes in a timely manner and at minimal cost. At the same time, the legal framework for arbitration guarantees that the principles of equal treatment and the right to be heard in all respects are protected.
Early interaction with experienced lawyers who know the cultural, legal and regulatory environment of different countries, and will strive to achieve results for their clients, is important. Specialists of our company provide complex legal services related to the arrangement of international disputes, in particular:
- consulting on the selection of dispute settlement procedure and substantive law at the stage of conclusion of the contract;
- Negotiation, mediation and development of out-of-court dispute resolution strategies;
- legal analysis and evaluation of documents;
- assistance in the arrangement of controversies through arbitration in any part of the world.
