In the negotiation of complex cross-border commercial contracts, the parties too often pay scant attention to the terms of dispute resolution clauses. The clear advantages of choosing international arbitration over court forums can be overlooked.
Here are our top ten reasons to bargain for international arbitration in the dispute resolution clause of a commercial contract:
1. International arbitration awards are recognized and enforceable in over 150 countries under an international treaty known as the New York Convention.
2. Court judgments of federal and state courts in the United States may be difficult or impossible to enforce in foreign countries. The United States is not a party to any treaty enabling the reciprocal recognition and enforcement of court judgments regarding commercial agreements.
3. Your company can limit the likelihood that it will be hauled into a hostile foreign court.
4. Your company can have a large influence on the qualities and experience of the person(s) who will decide your case – and on the number of decision-makers. The dispute resolution clause of a contract can provide a process for the selection of arbitrators. For large cases, companies usually prefer a panel of three arbitrators and the discretion of each party to choose one of the arbitrators; the third is commonly appointed by mutual agreement. For large cases, the risk that one arbitrator might get everything wrong is moderated by using a panel of three neutrals. You don’t have the choice of a three-judge panel in a trial court in the United States.
5. The international arbitration clause can specify any convenient seat for the arbitration. You can negotiate your company’s home city as the arbitral seat — just as you would choose a local state or federal court for perceived home field advantages — unless your state is among the few that interpose restrictions. The best international arbitrators will serve anywhere and, in any event, most pre-hearing matters are usually handled over the phone.
6. International arbitral awards are final, unless you select procedures providing for institutional appeal (as opposed to judicial review), which are available under some rules. The avenues available for successful appeal of such awards are quite limited.
7. Parties can control the scope of discovery. The rules of the leading international arbitration institutions generally provide for discovery that is quite limited in comparison to the broad discovery permitted in U.S. court proceedings. However, it is also possible to draft an arbitration clause that permits discovery to the same extent, for instance, as permitted under the federal rules of civil procedure.
8. The scheduling of an international arbitration is generally more reliable than the scheduling of court proceedings. Hearing dates for arbitrations are established in far advance and generally hold firm. The firm trial date, however, is a rarity in many courts. The uncertainty of trial dates can result in substantial inconvenience and, in the worst case, the unavailability of company executives, experts and other witnesses.
9. Although there is controversy regarding the expense of international arbitration, parties can manage international arbitration proceedings so that they are more cost-effective than U.S. court actions. Cost savings are achieved, for instance, in the favored limitations of discovery, the commonly less fulsome motion practice, fewer appearance dates (most pre-hearing business is conducted by phone), the relatively shorter period before a hearing as opposed to a trial and the number of hearing days permitted.
10. Mediation is gaining increased traction in the world of international arbitration and the rules of some leading arbitral institutions encourage consideration of mediation at all stages of the arbitral process. Dispute resolution clauses can be drafted to require a stepped ADR process beginning with a mandatory mediation. The availability of mediation services and the cultural acceptance of mediation varies both in the context of court cases and international arbitration proceedings.
To learn more about Fitch Law Partners LLP‘s international arbitration practice, please visit our website.