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Business Guide to International Arbitration

Business Guide to International Arbitration

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Doing business internationally creates new opportunities for learning and growth; but, unfortunately, not all of those opportunities go exactly as planned. When disagreements or issues arise, it’s important to have a plan in place for your organization and any other parties involved. There are many ways to handle these situations, but international arbitration is one of the widest-known and best accepted.

International arbitration is a form of alternative dispute resolution (ADR) in which the parties involved agree to resolve their dispute/s with private arbitrators instead of in a court.1 Arbitrators are trained in negotiation, the legal system, and conflict resolution to help people resolve their dispute without protracted litigation or a trial.2 With this method, you can choose when and where the arbitration will take place, who will be a part of it, how it will be conducted, and the governing law that the arbitration will follow. This is usually agreed and documented in an arbitration clause in your commercial agreements.1

International arbitration is popular for multi-national and cross-border transactions because of its flexibility, neutrality, and enforceability no matter where and between whom the dispute is taking place. Arbitration is also a universally recognized and respected form of dispute resolution, with over 170 countries having ratified the United Nations’ Convention of the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (also known as the New York Convention).3 It’s in use domestically as well: in the United States alone, about 54 percent of nonunion private-sector employers have mandatory arbitration procedures.4 Thus, it’s likely that you will take part in arbitration, in some form, throughout your business and/or legal career.

The International Arbitration Process

The act of arbitration usually begins long before a business dispute occurs. As mentioned above, companies will usually include an arbitration clause in their business agreements, and even in employee contracts. This will include all the details of how, when, and where the arbitration process will unfold. By entering into an arbitration clause or agreement, both parties acknowledge that they will not litigate covered issues in court, but will follow the agreed procedures.

The details of an arbitration are unique to the businesses enacting them, but here is the typical process for international arbitration:5

  1. One side files a request for or notice of arbitration.
  2. The receiving party files a response to that request with any counterclaims and information necessary to begin the proceedings (e.g., contact information, who else should be included).
  3. All involved parties select their arbitrator/s, or the “arbitral tribunal.” If they cannot agree, an independent appointing authority is usually tasked with making the selection/s for them.
  4. The arbitral tribunal establishes the timeline and location/s for the arbitration and addresses any objections to the upcoming proceedings.
  5. The arbitral tribunal gathers the original filing party’s statement of claim; the receiver’s response, defense, and counterclaim/s; and the original filing party’s reply and defense to those counterclaims, also known as the “pleadings.”
  6. All parties hand over agreed relevant documents and evidence to the arbitral tribunal in disclosure/discovery, including witness statements and expert reports. (Note that this discovery is generally far less than mandated in U.S. litigation).
  7. All parties exchange pre-hearing submissions, or “memorials.” These memorials are meant to lay out all the facts of the case based on everything in disclosure/discovery.
  8. If applicable, the arbitral tribunal hosts hearings for each party to present their case. If the arbitrators need more information, they follow up with post-hearing submissions.
  9. The arbitral tribunal announces the official close of the proceedings and begins deliberation.
  10. After deliberation, the arbitral tribunal announces the “award” for the case, similar to a court ruling. Arbitral awards can generally not be appeared or challenged.

Advantages of International Arbitration

Instead of spending time and money on litigation and court proceedings, many companies prefer arbitration. This is especially helpful when cultural, religious, or geographic differences intervene. Below are some of the benefits that executives appreciate about this form of dispute resolution.

1. A neutral and impartial process

In a sometimes messy and personal dispute, arbitration seeks to remove the barriers of bias in international business disputes. Unlike courts that may be influenced by domestic interests, organizations will operate on a level playing field and can expect a fair and unbiased judgment. This is made possible by the presence and selection of the arbitrators, not judges and juries in someone’s home jurisdiction. As third parties with no personal gain in the process, arbitrators can assess facts, evidence, testimonies, and final decisions without external pressure.1

For example, a food supplier in a less wealthy country, like Niger, might be opposed to a large, multi-national company like McDonald’s pulling its stores from their region. If they bring a case in their homeland, the court might be (consciously or unconsciously) swayed to side with the food supplier because they know how crucial McDonald’s jobs and revenue are for the local economy. But in arbitration, depending on how the arbitration clause is set up, both the supplier and McDonald’s could have representatives with zero ties to their business or success that can evaluate the situation objectively.

2. Flexibility

Moving outside of rigid, formal court regulations means that businesses can effectively customize their arbitration process. This includes the institution that will administer the arbitration (e.g., the American Arbitration Association), who the arbitrators will be (e.g., lawyer who specializes in commercial real estate, a retired judge), how the arbitrators will be appointed, the legal place of arbitration, or the “seat” (e.g., in a specific city, in a convenient building for both parties), and what language is used in the arbitration.1

All of these choices allow more flexibility and autonomy for both parties. There even is flexibility when you do not yet have an arbitration clause; if a dispute occurs and the involved businesses want to use arbitration instead, they can submit a submission agreement.1

3. Confidentiality

Unlike court filings, the materials and details used by an international arbitral tribunal are usually not available to the public and remain between the parties involved. Hearings, statements, and testimonies are also held in confidence. The parties involved can even agree to keep the entire existence of the arbitration secret.1,5

Confidentiality is beneficial for companies who want to protect their reputation, especially in sensitive cases involving sexual misconduct and civil rights violations.6 Even if the arbitrators rule in your business’ favor in court, it can be difficult to overcome the public’s opinions; arbitration removes the potential PR and legal ramifications after a decision is reached.

4. Enforceability

Once an award has been granted, it usually is much easier to enforce than foreign court judgments and generally cannot be challenged or overturned. The New York Convention ensures that all awards are recognized and enforced no matter what jurisdiction the businesses are in. Because 170 countries have ratified the New York Convention treaty, this sets a national standard for upholding awards.1,5

International Arbitration Institutions and Rules

Despite all efforts to prevent it, arbitration can be a tedious, complex, and expensive process, especially when large global companies are involved. To maintain the integrity and longevity of arbitration methods, there are several organizations that oversee international business arbitration cases all around the world.

These include:5

  • The International Chamber of Commerce (ICC)
  • The International Centre for Dispute Resolution (ICDR)
  • The American Arbitration Association (AAA)
  • London Court of International Arbitration (LCIA)
  • The Hong Kong Arbitration Centre (HKAC)
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How to Specialize in International Arbitration

International businesses don’t trust their arbitration discussions with anyone but the best; usually, that means professionals who are highly experienced in dealing with the nuances of cross-border contracts and relationships and know how to navigate the laws of multiple jurisdictions, treaties, and legal principles. That level of knowledge and experience is only possible with a rigorous, in-depth education from a renowned institution.

That’s why the University of Pittsburgh launched the Online Master of Studies in Law (MSL) with an International Business Law specialization and International Business Law certificate. After seeing a need for professionals trained in cross-border transactions and disputes, and based on the success of the Center for International Legal Education, Pitt Law created this online program to prepare you for understanding and managing U.S. and international business transactions via skills gained in litigation, mediation, and arbitration.

If you’d like to learn more about the program, curriculum, and career opportunities, visit our website or schedule a call with an admissions outreach advisor.