What Is International Arbitration
How Businesses Can Navigate the International Arbitration Process
International arbitration is a process of dispute resolution that works in a similar way to arbitration in the U.S. In international arbitration, disputes are settled by a specific process that includes an arbitrator. The purpose of international arbitration is "to provide businesses engaged in international transactions with a neutral forum for dispute resolution."
What Is Arbitration?
Arbitration one of the processes of alternative dispute resolution; that is, it is used instead of litigation (going to court) to resolve disputes. Arbitration can be optional, but more and more contracts include a mandatory arbitration clause, requiring that arbitration is to be used in disputes.
In arbitration, both parties agree upon an arbitrator who hears both sides of the case and issues a decision. Unlike mediation, the decision of the arbitrator is binding on the parties.
How Did International Arbitration Get Started?
With the increasing globalization of trade and business after WW II, the need for an arbitration process that could work between companies in different countries was seen. A treaty called the New York Arbitration Convention was agreed upon in 1959. The New York Convention has been adopted by 154 of the UN members, and more than 65 countries have participated in arbitration decisions.
Since that time, other conventions have been established. In the U.S. the Federal Arbitration Act includes the New York Convention, which states that this convention "shall be enforced in United States courts...."
Why Use International Arbitration?
The primary benefit of international arbitration is that it is enforceable, where litigation (court cases) between business entities in different countries may not be. It also is set up with the consent of both parties, and results are kept private in most cases. Other benefits are similar to arbitration in the U.S.: it is a faster and less expensive process than litigation.
Without international arbitration, the only way to take someone to arbitration in another country would be to use that country's laws. This is often not a workable option. Let's say you wanted to use arbitration with a customer in Germany. That means finding an arbitrator who can speak German and who can work in Germany. You would be at a disadvantage because German laws and arbitration procedures might favor the customer.
How Does International Arbitration Work?
Imagine a dispute between companies in two different countries. Which court has jurisdiction? Which country's laws should be followed? In these cases, having a neutral process that everyone accepts makes settling these between-country disputes much easier.
There are multiple arbitration associations that operate under the New York convention or other conventions. To begin an arbitration, a request for arbitration must be filed with one of these associations. One of the largest of these associations is the International Chamber of Commerce (ICC); we'll use their process to describe what to do.
Request for Arbitration and Answer. Let's say you want to request an arbitration over an issue with a customer in another country. You would go to the ICC and file a request and pay $5,000 for administrative costs and filing fees.
Among the information in the request, the most important parts are:
- You must state the nature of the dispute and the basis on which the claim(s) are being made
- You must state what resolution you want, including any monetary damages if those can be stated.
An arbitration agreement between the two parties must have been signed. The ICC transmits your request to the other party, which must respond within 30 days.
Before the Tribunal. If the other party has issues with the arbitration agreement, or it doesn't respond, the ICC will rule on these questions. The ICC will also require an advance on costs (the arbitration agreement should have specified how arbitration costs are to be paid; usually shared).
The Tribunal. After some other preliminary procedures, and the tribunal (one or more arbitrators) has been set up, the tribunal begins its work. Most of these meetings are conducted by teleconference. The process itself is flexible, based on agreements between the parties and the tribunal. Witnesses and experts may be heard, as well as the parties involved.
After the Tribunal. When the tribunal has made its decision, the timetable for the final award is set and submitted to the ICC International Court of Arbitration.
Creating an International Arbitration Agreement
if you do business with customers, vendors, or employees in other countries, you might want to consider creating an an international artibration agreement or adding an international arbitration clause in contracts with these people of businesses. The clause, as suggested by the International Chamber of Commerce, would state that all disputes arising from the contract "shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."
How Does International Arbitration Affect My Business?
If your company deals with vendors or customers in other countries, it's a good idea to have a contract with each one that includes an arbitration clause. Having this agreement gives you the flexibility to pursue arbitration if necessary, or to make a dispute against your business less costly and time-consuming than between-country litigation.
Before you begin the process of international arbitration, you will need to find an attorney who specializes in this area of law to help you navigate the process. The Independent International Arbitration Attorney Network has a list of international arbitration attorneys. You might also check with the larger law firms in your area to see if they have an international arbitration attorney on their staff.
Disclaimer: This article is a general overview of the international arbitration process. It is not intended to be complete nor is it intended to be legal or tax advice. Before you attempt international arbitration, find an attorney who specializes in this area of law.