Imagine you’re the in-house counsel for a top-earning European business which signed a multi-million Euro contract with an American supplier a little over a year ago; your employer discovers the American supplier is violating the contract by supplying your biggest rival on the European market: what recourse does your company have? Where should legal action be brought against the party at fault? How do you make sure your employer is compensated for damages? This is the kind of situation international arbitration was designed to help resolve.
As global trade continues to grow at an exponential rate, the need for a dispute-resolution framework for international trade comes into sharp focus. International arbitration is a field of international trade law which seeks to facilitate contract formation between parties in different states by providing a mutually-agreed neutral ground in case a dispute may arise, in lieu of relying on the national court of one of the contracting parties. Determinations given by arbitral institutions will be binding and enforceable in nearly any developed country in the world, provided they have signed one of the main arbitration treaties or have signed a bilateral investment treaty with the other party’s country of origin.
The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, otherwise known as the New York Convention, today counts over 150 state parties and forms the basis for the international arbitration in its current form. It requires not only the recognition and enforcement of arbitration awards admitted abroad – giving these awards powers across national borders – it also requires signatories’ national courts to recognize and enforce agreements reached via arbitration. As such, the Convention’s main priority is to ensure each contracting state recognizes arbitral awards as binding and enforce them per their local procedural rules.
The New York Convention nonetheless allows for certain exception, allowing local courts to refuse recognition or enforcement of an award if the arbitration agreement is invalid, if the award violates due process of the party against whom the award is invoked, if the arbitrator exceeded their authority, if there were any irregularities in tribunal composition process or the tribunal procedure itself, or if the award is not yet binding in the country of origin. Lastly, enforcement can also be refused if the subject matter is not capable of settlement by arbitration, or if it violates the public policy of the country where recognition is sought.
The other crucial element of the New York Convention focuses on arbitration agreements themselves, requiring courts of signatory States to recognize the validity of arbitration agreements. Furthermore, the convention asks these same courts to refer parties to arbitration at the request of one of these parties, provided they are faced with an action where parties have signed an arbitration agreement. This can only be avoided if the court finds that the arbitration agreement is null and void or incapable of being performed.
Arbitration presents some distinct characteristics when compared to litigation in national court. Arbitration is typically quicker and cheaper than litigation in national courts, namely due to the fact that the rules and procedures of arbitration are less formal than in national courts and that delays of huddled court docket can be avoided; this having been said, national arbitration laws and institutional arbitration rules nonetheless require arbitrators to operate according to generally recognized procedural and evidentiary principles.
However, arbitration can also be less predictable, compared with litigation in competent national courts, partly because arbitral awards are typically difficult to challenge effectively. As such, a party will typically find arbitration to be the more attractive option if it’s unlikely its own national courts would have jurisdiction or if it’s unlikely that these courts’ judgements would be enforceable against other parties.
Additionally, a party may also prefer arbitration if it finds that there are advantages to having disputes resolved by person with expertise in the subject of the contract and in a more private setting. Lastly, a party may question the integrity, reliability or efficiency of their national court, and thus favour arbitration.
Place of Arbitration:
Where arbitration takes place is another factor parties need to consider, Indeed, the place of arbitration will determine much of the procedural rules, as well as which national laws will apply, including domestic arbitration provisions, conflict-of-law rules and international treaties. Additionally, for purposes of recognition and enforcement, parties should seek a country that is party to the New York Convention, as the place of proceedings will typically be the place where the award is finalized.
It should be noted that the place of arbitration will have no bearing on the origin of arbitrators, as they are typically chosen for their expertise in handling specific cases above any other characteristic. Similarly, it should be noted that a set place of arbitration does not preclude the parties from holding meetings in other locations for the convenience of arbitrators, parties or witnesses. Lastly, while it is advisable to agree on a language for proceedings ahead of time, many arbitration institutions will provide mechanisms for establishing which language the proceedings will take place in should the parties have omitted this from their arbitration clause in their contract.
One of the predominant systems used today is known as the UNCITRAL Arbitration Rules, originally established in 1976 by the United Nations Commission on International Trade Law. The UNCITRAL rules have been used for a wide variety of disputes, including disputes between commercial parties, and has also led to the creation of new fields of international public law to settle investor-State and State-to-State disputes. Closer to home, the Netherlands Arbitration Institute is a non-profit organization established in 1949 to promote arbitration and mediation as means of resolving disputes on both national and international levels.