International commercial arbitration offers significant benefits to businesses engaged in international transactions. It enables them to resolve disputes quicker, at a lower cost, and with greater enforceability than can normally be achieved through national Courts.
The five (5) key benefits of international commercial arbitration include:
- greater enforceability;
- consistency;
- neutrality;
- procedural flexibility; and
- confidentiality.
What is international commercial arbitration?
Arbitration is a private process where parties to a commercial contract agree (Arbitration Agreement) to let an arbitrator[1] (Arbitrator) make a binding decision on a dispute between them, without recourse to national Courts. The Arbitrator receives evidence, hears arguments and applies relevant law to reach a binding decision, called an award (Award). The Arbitrator’s decision is final. A right to appeal is available to avoid abuse of process but is generally restricted to matters of procedural fairness.
Commercial arbitration is “international” if the parties have their places of business or residence in different countries, or they expressly agree that the subject matter relates to more than one country.[2] The Award issued in an international commercial arbitration is called a foreign arbitral award (Foreign Award).
Enforceability of Foreign Awards
The strength of international commercial arbitration rests on the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) which requires countries to recognise and enforce Foreign Awards.[3]
International arbitration Awards are enforceable in approximately 86% of countries worldwide.[4] In those countries, Foreign Awards are, with limited procedural exceptions, enforceable by a Court without requiring that it rehear the dispute.
The most significant benefit of international arbitration is the ability to have both an Arbitration Agreement and a Foreign Award recognised and enforced in a foreign country. Getting a local court to enforce a Foreign Award can often be simpler, more efficient, and more effective than attempting to have a foreign Court enforce a local judgement.
Consistency
The United Nations Commission on International Trade Law (UNCITRAL)[5] Model Law on International Commercial Arbitration (Model Law) provides a basis for harmonised national laws to address how international arbitration procedure applies in that country. Eighty-five (85) countries worldwide have adopted the Model Law. Others, such as Switzerland, have implemented substantially similar legislation without specifically adopting the Model Law.
Perfect harmonisation of international arbitration law is unlikely, however, the consistency achieved by the broad adoption of the Model Law is significant. Key aspects of international arbitration procedure are dealt with similarly across the world, unlike in litigation, where national legislation and Court procedure vary significantly.
From a business perspective, the consistency achieved provides greater predictability around the process and procedure for initiating and resolving international arbitrations. It also reduces the time and direct costs that would normally be incurred in developing familiarity with different legal systems.
Neutrality
Parties are free to agree on how and where their matter will be arbitrated[6], and can choose a neutral venue as the place of arbitration. The choice of place might be driven by convenience, accessibility, price or other considerations relevant to the parties and their transaction. The place determines the procedural law that applies. For example, by selecting Geneva as the venue, the parties would invoke the application of Switzerland’s arbitration legislation.
Party autonomy extends beyond the ability to select a neutral place of arbitration; it includes the ability to choose the substantive law that will apply to the contract. This discretion is quite broad and, in some jurisdictions, can even include the application of rules other than the national law of a country. For example, parties can choose general principles and rules of equity and fairness, rather than state-based black-letter-law.
Party autonomy enables parties to decide on both the procedural and substantive law that best addresses their requirements without favouring any specific party.
Procedural flexibility
Arbitrations can be ‘ad hoc’ or institutional. An institutional arbitration is one where a specialised institution[7] administers the arbitration process through its own framework and rules. In ad hoc arbitration, the parties determine all aspects of the arbitration themselves.
‘Ad hoc’ offers greater flexibility and can be less expensive if handled efficiently. However, where parties have less experience with arbitration or the amounts in dispute are lower, the structure and experience of an institution can provide significant advantages and may result in lower costs overall.
Many institutions offer expediated options that can further reduce the cost and duration of an arbitration. The ability to resolve an international dispute quickly and at reduced cost can often be a significant advantage.
Confidentiality
Unlike the often-public nature of litigation, arbitration is an inherently private process. Some countries and institutions provide degrees of confidentiality under their arbitration legislation or institutional rules, but if confidentiality is important to the parties, it is best to expressly include it in the arbitration agreement. Confidentiality may not be absolute. If an award needs to be enforced through national courts, the process could lead to unavoidable disclosures. Nonetheless, arbitration provides greater confidentiality than litigation.
Discovery is another area where arbitration provides the opportunity for greater privacy. Parties can agree to limit discovery or even exclude it altogether. This approach has benefits not only in preserving confidentiality but also in expediting and reducing the cost of arbitration.
Links and further references
Related Articles
Arbitration clauses in international contracts.
Legislation
Commercial Arbitration Act 2013 (Qld).
International Arbitration Act 1974 (Cth).
Further information
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
[1] The number of arbitrators can vary but is typically either one or three. If more than one arbitrator is appointed, it is referred to as a tribunal.
[2] Schedule 2, International Arbitration Act 1974 (Cth). Article 1(3)(c), UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006)
[3] Article III, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
[5] United Nations Commission on International Trade Law
[6] Article II, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
[7] Examples of arbitration institutions include the Australian Centre for International Commercial Arbitration (ACICA), Swiss Arbitration, London Court of International Arbitration (LCIA) and International Chamber of Commerce (ICC) Arbitration
