International arbitration is a means of resolving disputes between parties in different jurisdictions. It is the referral by disputants to a decision maker who pronounces a legally binding decision. Rather than using the traditional court model with its inherent resource constraints, parties can determine their own procedure and choose their decision maker. It has been likened to private sector litigation.
International arbitration rejects (to the extent permissible) resort to the national courts for determination of the dispute and thus looks to a resolution mechanism that goes beyond the domestic sphere.
What law applies?
International Arbitration does not exist in a legal vacuum.
At least one national state law applies in determining the substantive issues in dispute (the law of the contract) and potentially a second (the law of the seat) for governing procedure (or supplementing institutional arbitral rules) where distinct from the former. The parties decide in their contract what law applies to govern their substantive rights and what law applies to govern how the arbitration is to run. Many states have mandatory arbitration acts that set minimum standards for how arbitrations are conducted in their jurisdiction. Scotland benefits from a modern regime set out in the Arbitration (Scotland) Act 2010 and England & Wales from an earlier Act in 1996.
Courts retain an important role to play in supporting the arbitration, particularly in enforcement of awards if the losing party refuses to pay.
How do parties agree to arbitrate?
Typically, parties will agree to use arbitration by having an agreement to that effect in their contract. Most international arbitrations are agreed in advance by including such a clause at the outset.
It is also possible to agree to proceed to arbitration after the dispute arises through entering an agreement to do so. This is much rarer because by the time of formal dispute the prospect of reaching agreement on how it should be resolved is significantly more difficult than at the outset of the relationship.
How does International Arbitration work and where does it take place?
International arbitration disputes are resolved by appointing a suitable third party to provide a legally binding decision. Parties present their case before a single arbitrator or typically a panel of three arbitrators (a tribunal), rather than in court and because it is not tied to the courts of any jurisdiction, International Arbitration is geographically flexible.
Parties, wherever they are based, can agree the seat of arbitration, the governing law most appropriate and the location where hearings take place. Communications are largely conducted by email and most hearings are dealt with remotely by video or telephone conferencing which means that arbitrations (unlike litigation) are less likely to be disrupted.
What benefits does International Arbitration offer?
There are many benefits of international arbitration.
It offers real flexibility and choice for the parties’ needs – picking the decision-makers, law, venue and rules of engagement. International arbitration is confidential, so sensitive information does not end up in the public domain.
There are also cost benefits as arbitrators typically award significantly higher recoveries to successful parties and arbitral awards are generally easier to enforce than court judgments. The 1958 New York Convention is internationally accepted and affords a clear route to turning the arbitral award into payment.
Who should consider International Arbitration to resolve disputes?
Businesses that want real choice and control over how their disputes are resolved should consider international arbitration. Parties doing business across borders will find it a safe and secure means of determining issues dividing them. The decision to arbitrate allows parties to ensure a neutral venue without potential difficulties arising from use of the others' national courts.
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