Staying Ahead of the CurveImplementing effective arbitration agreements

An examination of most commercial contracts governing international agreements will reveal a clause dealing with alternative dispute resolution, specifically arbitrations.

The oft-quoted advantages of arbitration, as opposed to litigation, usually revolve around control; in terms of privacy, timing, flexibility and cost.

Arbitrations are conducted in private, as opposed to litigation which is open to public scrutiny. Parties to an arbitration can also control the timing of the arbitration process, since they have chosen and employed the arbitrators conducting the process. There is also the benefit of avoiding trial by jury. As a result of this control, arbitrations are routinely used to resolve international disputes.

A very important consideration is the choice of forum to hear the arbitration, both jurisdiction and institution. Most parties will want the arbitration to take place in their home jurisdiction, but in an international agreement this might not be possible. In such a case, a third party jurisdiction satisfactory to both parties may be chosen and agreed before a dispute occurs. Countries that have adopted the New York Convention on arbitration are preferable, however if that is not possible a country with a stable court system and a proven set of procedural rules around the arbitration process must be chosen.

In terms of choosing an institution to hear an arbitration, the established institutional bodies such as the International Chamber of Commerce’s Court of Arbitration (ICC) or the American Arbitration Association (AAA) are attractive because of their sophistication and experienced professional staff. They can also be very expensive, so a cost-benefit analysis of the dispute should be undertaken before a choice is made. Ad-hoc arbitrations are possible; using the rules of an institution, without the administration costs.

It is also important to ensure that the arbitration award can be enforced by the prevailing party once handed down. This entails ensuring that assets due to be sequestered to satisfy the claim are located in an accessible jurisdiction.

The development of the arbitration clause within a contract is crucial to ensuring all of the above elements can be enforced correctly in the event of a dispute. Many commercial contracts neglect to include a properly tailored arbitration clause, designed specifically for the parties involved, because its importance is underestimated.

If time is taken to get this right, it will include provisions such as fee-shifting designations around the number and type of arbitrators to be used, plus specified forums and institutions. It might also specify the use of mandatory mediation prior to arbitration.

The following discussion between 10 arbitration experts from across the world, is a comprehensive analysis of the use of arbitration in international commercial agreements.

Our experts address all the points raised above and detail interesting specifics about their home jurisdictions, using case examples to highlight their points. Enjoy.