Alternative Dispute Resolution (ADR)

In an Unruly World, International Arbitration Offers A Safe Haven for Business Disputes

International arbitration provides companies with a reliable process for resolving disputes with customers, suppliers and other partners throughout the world.

The political volatility in many parts of the world has caused some in-house counsel to re-examine how they manage international commercial disputes. Specifically, the surprise results of the 2016 Brexit referendum in the UK and rising populism across other parts of Europe have resulted in questions about the long-term stability of the European Union, an international institution that many simply assumed would be around forever. Geopolitical volatility and uncertainty have also arisen in other parts of the world, and organizations that operate internationally want to ensure that their business relationships are not impacted by those political changes and that they have a neutral forum where business disputes can be resolved. Fortunately, arbitration provides a reliable process to resolve disputes that multinational companies may have with customers, suppliers and other partners in various parts of the world.

For example, take a multinational corporation from Germany, China, the U.S., or Mexico that contracts with a company in a country at political loggerheads with the multinational’s country. That multinational would likely already be inclined to include an arbitration clause to avoid litigating disputes in the national courts of the other parties to the contract. However, those concerns may be heightened when political tensions also exist among the governments of the countries where the contracting parties are located. Whether perception or fact, both parties may believe that they will be treated with hostility in the other party’s courts.

For companies based in the U.S., which has financial and legal systems that the world views as stable, a U.S. city would be viewed as the ideal venue for arbitration between parties in an international dispute. New York, Miami, Los Angeles, Houston, Miami and many other cities offer established law firms with specialized arbitration practices, experienced arbitrators and various options for hearing-room space.

The U.S. is also a party to the New York Convention, one of the most successful treaties in international trade law, which requires the enforcement of arbitration awards, subject to limited exceptions, in the courts of member countries. Given that the New York Convention has been ratified in over 150 countries since it was adopted 60 years ago, and has additional member countries being added each year, parties engaging in international transactions can largely operate under the assumption that the Convention rules will apply to their arbitration agreements. As a result, businesses that include arbitration agreements in their international contracts are given a powerful tool – namely, the ability to have arbitration awards that are rendered in one country and recognized and enforced in the courts of another party to the contract.

All companies are likely to prefer locating a venue for international arbitrations in the country where they operate or are based, but negotiations with counterparties may require compromise and agreement on an arbitration venue in a different country. When that occurs, it is important that the agreed-upon venue is known to be supportive of arbitration and one that provides an adequate pool of potential arbitrators and other facilities needed for an arbitration to take place.

Arbitration Forums Offer Flexibility and Reliability

International arbitration case filings have remained strong among the major arbitral institutions in recent years, and arbitration continues to be increasingly popular for resolving international disputes, not just because of the reliable and enforceable process but also because it offers flexibility to the parties involved.

When drafting arbitration clauses, it is recommended that parties designate an arbitral institution to administer the arbitration. While such clauses can be quite brief, care must be given to how they are drafted. Designating an arbitral institution in the arbitration clause is one important consideration, and the model arbitration clause provided by the institution selected by the parties is a good starting point. Selecting an arbitral institution will also provide a road map and oversight for any future arbitration as well. Parties should select one that has significant experience administering arbitrations. It should provide parties with an appropriate level of choice, flexibility and autonomy, and it should have a roster of arbitrators that includes experienced professionals with industry or subject-matter expertise. For example, when the International Centre for Dispute Resolution (ICDR) is designated in an arbitration clause, the ICDR’s international rules apply to any further arbitration proceedings, and staff will be assigned to manage the arbitration and assist with arbitrator selection.

Arbitration offers companies in the U.S. and around the world that are involved in international transactions a reliable dispute-resolution process that has worked well for decades. In a world full of instability, the reliability and neutrality that international arbitration provides are more essential than ever.

Eric P. Tuchmann is senior vice president, general counsel and corporate secretary of the American Arbitration Association and its international division, the International Centre for Dispute Resolution.

Published September 6, 2018.