Worldly Preparation: Alternative Dispute Resolution in a Global Setting


The negotiation of any international contract should include a thorough discussion of dispute resolution procedures. Yet, because of either superstition or etiquette, corporate lawyers often consider dispute resolution too little, too late. As a result, volumes could be filled with the unhappy experiences of U.S. companies seeking to redress grievances or to enforce duly rendered judgments in foreign courts, where the procedures are unfamiliar, the language is rarely English, and the process can consume years. For the non-U.S. party, the prospect of "American-style" litigation is even more daunting.

Fortunately, there is an alternative. The chance that today's international opportunity will become tomorrow's international legal nightmare can be substantially reduced by using properly-drafted arbitration clauses. The purpose of this article is to argue that, in view of the many advantages that arbitration offers over litigation in the international arena, such clauses should be de rigueur in most international agreements.

The Advantages of Arbitration in the International Context
A. Greater Client Confidence

Consider an international dispute from the client's perspective. For businesspeople, litigation in any court is rarely a comforting prospect. In the international context, the usual burdens and risks of litigation are compounded by the unfamiliarity of foreign laws, procedures, and judges; the fear of 'home turf' partiality; and, the necessity of entrusting the dispute to foreign counsel.

Contrast that with the perspective of the client whose international dispute will be arbitrated. When the dispute arises, this client may be advised that, because her lawyer recommended an arbitration clause, matters will proceed under the rules and through the administration of a neutral international arbitral body. The lawyer may then hand over a comparatively slim booklet containing the rules that will govern the arbitration, written in plain English and available in most other languages generally used in international commerce. The client need not obtain foreign counsel, save perhaps to play a supportive role, because her own counsel can represent her in an international arbitration in most countries. Arbitral proceedings will likely be in the language of the agreement and the client will have substantial input in the selection of the arbitrators. Although there will surely be frustrations along the way, the client should see the process as accessible and expeditious when compared with the alternative of foreign judicial proceedings.

B. Assurance of a Neutral Forum and Impartial Administration

Arbitrations are a product of the parties' arbitral agreement. Through their agreement, the parties control the entire process, including where and under whose administration the arbitration will take place. This system ensures that, regardless of where the proceedings are held, neither party will enjoy a 'home turf advantage.' In fact, the rules of most international arbitral organizations expressly require that the sole arbitrator or the chair an arbitral tribunal be from a country neutral to the parties in the dispute. Because the parties have consented to the arbitral forum, problems of personal jurisdiction and service of process, often obstacles in international litigation, are avoided.

Parties may place the arbitration's "situs" wherever they agree. Some agreements place the arbitration at a site equally convenient for both parties. Others create a disincentive to arbitrate by designating alternative sites, so that, if a dispute arises, proceedings will be at the site less convenient for the party that initiated the arbitration.

Far more important than the relative convenience of the situs, however, is the question of whether the laws of the situs are "arbitration-friendly." Although the parties' arbitral agreement may specify a different substantive law to govern the merits of a dispute, the arbitration laws of the situs will determine whether the courts in that jurisdiction will respect or interfere with the arbitration process. Liberal arbitration laws in the United States, France, England, Canada, New Zealand, Switzerland, Sweden, the Netherlands, and Germany qualify all of these jurisdictions as "arbitration-friendly," although this list is not exhaustive. Most importantly, to ensure that the choice of an arbitral forum and the resulting arbitration award are enforced, the situs should be a jurisdiction that has ratified the Convention for the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention, which allows for enforcement of international arbitration agreements and awards worldwide 21 U.S.T. 2517 (June 10, 1958).

Note that the location of the arbitral organization designated by the agreement to administer the proceedings does not determine where the arbitration will take place; the organization will administer the arbitration wherever the parties choose. To decide which organization to designate in an arbitral agreement, lawyers should obtain and compare the rules and fee schedules of a variety of arbitral organizations. The International Chamber of Commerce (ICC) Court of Arbitration and the American Arbitration Association (AAA), which have both recently revised their international rules, are among the most well known and experienced arbitral bodies. Many other arbitral organizations are also worthy of consideration however. For instance, the British Columbia International Commercial Arbitration Center offers the advantage of being located outside the United States, often an imperative for the non-U.S. party, but still within an English-speaking common law jurisdiction relatively convenient for the U.S. party. For technology transactions, the World Intellectual Property Organization (WIPO) Arbitration Center should certainly be considered.

C. Simplicity and Flexibility of Procedures

In contrast to the formal protocols of national legal systems, international arbitration procedures are less rigid, permitting the parties to adjust procedures to the particular demands of their dispute. International rules combine civil and common law approaches to evidence-gathering and other issues. This blended approach usually entails reasonable limitations on document exchanges and the use of witness statements instead of depositions, resulting in more cost-effective procedures for pre-hearing disclosure and discovery. Arbitration rules grant arbitrators broad powers with respect to the conduct of the proceedings and the fashioning of relief, including interim and conservatory measures.

Finally, arbitration awards are final and binding, and generally are not appealable. The unsuccessful party may seek to set the award aside, but the grounds upon which awards may be challenged are limited, as discussed below.

D. Enforceability. The New York Convention

The greatest advantage of international arbitration is enforceability. Under the New York Convention, the cornerstone of the international commercial arbitration regime, international arbitration agreements and awards are enforceable worldwide. The Convention is a short document, although the list of countries that have acceded to its terms is very long, having grown to 119 as of September 1998. The United States acceded to the New York Convention in 1970; the enabling legislation is part of the Federal Arbitration Act, 9 U.S.C. ' 201-208. Because of the large number of ratifying countries and the important role that the Convention has come to play in facilitating international trade, it is widely regarded as one of the most successful multilateral commercial treaties in history.

The Convention provides a simple but comprehensive mechanism for recognition and enforcement of international arbitration agreements. On the front end, it requires national courts to enforce written arbitral agreements and to send the parties to arbitration, unless the court finds that the agreement is "null and void, inoperative or incapable of being performed." At the back end, the Convention permits a prevailing party to enforce the resulting award in national courts almost anywhere its opponent's assets may be found. The grounds upon which a national court may refuse enforcement are limited by the Convention and it places the burden of proving these grounds upon the party resisting enforcement.

Awards may not be challenged on the merits. The exclusive grounds for challenging an award are:

  1. incapacity of parties or invalidity of the arbitration agreement;
  2. lack of notice or a fair hearing;
  3. exceeding the scope of the arbitration agreement;
  4. procedural irregularities; and,
  5. lack of finality or the setting aside of the award in the country where it was issued.

A court may also refuse enforcement if:

  1. the dispute is not arbitrable under local laws; or
  2. enforcement would be contrary to public policy.

There is no comparable worldwide treaty for reciprocal enforcement of forum selection clauses or foreign judgments. Thus, to ensure impartial administration, a neutral forum and an enforceable result in the resolution of international disputes, arbitration is clearly the best solution.

*article courtesy of Dana Haviland and Jeffrey Hessekiel.