Top Five Reasons to Include International Arbitration Provisions in Cross-Border Contracts

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In our modern, globally interconnected world companies from different nations frequently enter into business agreements with one another. While such joint ventures can create exciting opportunities, they can also run into challenges, or sour altogether. Thus, it is important to consider dispute resolution mechanisms at the outset of a contract or joint venture between international partners. International arbitration is the dispute mechanism best suited to resolving cross-border disputes. As the following five reasons show, international arbitration should be selected as the dispute resolution method between international partners for virtually any international contract:

1. Award Enforceability

Enforceability of arbitral awards is the single greatest advantage of international arbitration over all other forms of cross-border dispute resolution.  The United States and 158 other nations are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention, which obligates signatories to enforce arbitral awards rendered in other signatory states. Thus a U.S. company can take an arbitration award issued in a signatory nation to the national courts of another signatory nation, such as China or France, and the local courts will enforce the award.  There is no similar legal framework to ensure enforcement of court judgments across foreign nations, meaning there is no means by which to take a judgment issued by a U.S. court to a French or Chinese court and ensure payment or compliance with the U.S. court’s order.

2. Confidentiality

Contract parties can include confidentiality clauses in their arbitration provisions in order to keep highly sensitive information out of the public arena. Additionally, unlike court litigation, arbitrations are not generally part of the public record. Thus, arbitrations are significantly more confidential than litigation.

3. Expertise and Neutrality of Arbitrators

In the arbitration provision, parties can specify that appointed arbitrators have specific qualifications or experience in the relevant industry. In addition, because arbitration normally allows the parties to choose their arbitrator, they can select someone with the right experience for the job. Particularly in highly technical industries allowing for qualified arbitrators can facilitate more expeditious resolutions. In drafting their arbitration clause, however, Parties should be careful not to include such specific qualifications that will unnecessarily limit their pool of arbitrators. Additionally, the parties can agree – or some arbitral rules require – that arbitrators be of different nationalities than the parties in order to ensure a lack of national bias. This eliminates the home court advantage that might be present in litigation in national courts.

4. Streamlined discovery procedures allowing for faster resolution

International arbitrations generally do not include the normal discovery devices of American litigation such as depositions, interrogatories, and broad requests for production of documents. Instead, once the arbitral tribunal is established, it will work with the parties to determine whether they should be allowed to make requests for documents and what the procedure will be for the timing of requests, procedures for objections, form of document productions, and deadlines. While the amount of discovery will depend on the claims being made and the arbitrators selected, it is generally far narrower than in American litigation.

5. Control over dispute resolution mechanisms 

Including international arbitration provisions allows the parties to have greater control over the resolution of their disputes. In the arbitration clause the parties select which arbitral institution rules will govern the proceeding and can tailor those rules to their potential disputes. The parties can decide whether to allow for appellate review of the arbitral award, as well as the number of, and required expertise of, arbitrators. The parties also select the seat of the arbitration. These features of international arbitration clauses allow the parties to know ahead of time the rules, applicable law, and location of any arbitrations which may arise from their collaboration.

All these characteristics make international arbitration the preferred method of dispute resolution for international contracts and joint ventures. Thus, companies should seriously consider including international arbitration provisions in all contracts with cross-border partners.




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