International arbitration is the favoured method of solving cross-border disputes. The neutral jurisdiction it offers, together with the relative ease of enforceability of awards, can make it a more workable forum for disputes than litigating in either of the parties national courts.
International arbitration as a means of solving disputes continues to develop and its popularity grows.
But how does International arbitration work? Who is it that decides the forum? What are the laws and processes that it accords to?
So what is arbitration?
Arbitration is a way of dispute resolution that gives a final and binding outcome. Generally regarded as an alternative to court litigation, the existence of a valid agreement to arbitrate should mean that courts refuse to hear disputes falling within the scope of that agreement. In arbitration, the parties refer a dispute to an elected decision-maker (called an arbitrator), or panel of arbitrators (the tribunal). This is done by providing for arbitration in the contract known as the arbitration agreement.
The tribunal (the panel of arbitrators) will normally give its decision (the award) following a hearing where each of the parties will have an opportunity to present its position. If appropriate, arbitrations can be conducted on paper only. For example, where the sums or issues in dispute do not justify a hearing. The tribunal generally will decide the dispute in accordance with the law governing the relevant contract.
Dispute resolution lawyers should recommend their clients to at least try ADR, (usually mediation or arbitration) which should be faster and cheaper than litigation. Both litigation and arbitration have their pros and cons depending on the circumstances and where the contracting parties are based or have their assets located.
The key benefits of arbitration are:
Should be cheaper than litigation through the courts
The ease of enforcement of awards,
Having the ability to choose who decides the forum,
The neutrality that arbitrations offer is also a key selling point. Contracting parties often want the dispute to be heard in their local courts where they may get a perceived home advantage; international arbitration in a neutral country is the compromise.
Most of the arbitration laws will give the parties flexibility on matters. E.g. the appointment of the tribunal and the procedures to adopt. They will do this while providing a safety net where agreement is lacking. The tribunal will prescribe elements from which the parties cannot depart, including more fundamental parts of the process like the duties of the tribunal and fairness of the proceedings.
The seat of the arbitration
To fully understand how arbitration works, it is essential to known the importance of the seat. When parties have agreed to arbitrate, they should specify the legal location (or seat) of the arbitration. Then the parties choose a city, for example, London or Paris. The choice of seat gives the arbitration a "nationality", so in this case it would be English or French.
Depending on where the arbitration is set, the "nationality" of the seat extends to the award. So if you were to set the award of a London-seated tribunal, it will be regarded as English. This is important when it comes to enforcement. It is significant that the country of the seat of the arbitration has ratified the New York Convention, which is an international treaty that provides for the reciprocal enforcement of arbitration awards in 160+ countries. Some of the most prominent seats chosen in international arbitration are: London, Paris, Singapore, Hong Kong and New York.