International Commercial Arbitration: Benefits, Drawbacks & Anti-Suit Injunctions

Introduction to International Commercial Arbitration

As the barriers between nations diminish and the complexity of international commercial dealings grows, disputes naturally arise that exceed the standards typically contained within a single jurisdiction and affect parties across the globe. Consequently, parties involved in cross-border commercial controversies have an array of options for adjudicating their disputes: (1) resort to the courts of their own jurisdiction under domestic law; (2) resort to the courts of the opposing party's jurisdiction; or (3) resort to an out-of-court forum.

Parties who enter into international commercial agreements generally select the third option—international arbitration—as a means of resolving potential future disputes, because arbitration offers several advantages over transnational litigation:

(1) An arbitral tribunal is generally a far more neutral forum for dispute resolution than a domestic court, thereby avoiding the "suspected biases of a 'hometown justice' where judges will tend to rule in favour of the local party" (Uhle et al., 2006).

(2) The process in international arbitration is far more flexible and can be customized according to the specific needs of the parties—for instance, the parties can select the language to be used, the rules of law to be applied, and so on.

(3) The resolution of a dispute is generally faster within the framework of international arbitration.

(4) The parties can select arbitrators based on their subject-matter expertise, experience, and reputation.

(5) Arbitration proceedings can be kept confidential.

(6) Because of the consensual character of arbitration, arbitral awards are generally complied with at a higher rate than court judgments. As stated in Coopers v. Ateliers De La Motobecane (1982), "Voluntary compliance with arbitral awards may be as high as 85%."

(7) The fact that 144 nations have ratified the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") provides predictability and certainty to parties awarded under international arbitration—namely, that those awards will be recognized and enforced globally. In sum, when parties choose arbitration over transnational litigation, they exchange "the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration." (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 1985)

Primary Features of International Arbitration

Parties to commercial contracts containing a dispute resolution clause will typically choose binding international arbitration in a neutral location in order to avoid any appearance of favouritism. This is not always straightforward, however. The authorities of some nations—particularly in the Middle East—insist on arbitration within their own territories when entering into commercial arrangements. Absent such considerations of local policy, the choice of situs remains a key topic for parties to address when drafting arbitration agreements (Russel, 2006).

The same factors governing the choice of situs in a dispute resolution clause will also affect the choice of law governing the interpretation of the agreement and the substantive issues in any future dispute. It is generally advantageous for the governing law to be the same as that of the situs; otherwise, parties may introduce an additional jurisdiction in which to challenge an award. Under the New York Convention, a challenge to an award can only be brought in the jurisdiction where the situs is located (Russel, 2006).

Typically, there is considerably less discovery in international commercial arbitration than in U.S. court proceedings. If a party anticipates that it will need significant discovery in the event of a future dispute, it should negotiate and specify those procedures in the dispute resolution clause. Arbitrators should be selected with an awareness of their inclinations—whether strong or limited—regarding discovery. Generally, document-based discovery will be narrowly scoped, and depositions will not typically be available. A party that anticipates a dispute should maintain thorough contemporaneous records for future use (Russel, 2006).

The New York Convention requires, by virtue of its procedural framework, a full opportunity for a fair and open hearing before an award can be enforced. Nearly all institutional rules—including the UNCITRAL Arbitration Rules, which are frequently used in ad hoc international commercial arbitrations—provide for such a hearing. This is one of the greatest advantages of the international arbitration framework (Russel, 2006).

Some domestic U.S. arbitrations permit party-nominated arbitrators who may be associated with the nominating party, and in such instances those arbitrators may be regarded as representatives of the parties. This is emphatically not the case in international commercial arbitration. There is significant ongoing engagement by the American Bar Association on this issue (Russel, 2006).

Arbitral panels are generally empowered to order interim or provisional relief. However, the timeliness and enforceability of such measures can be challenging in practice (Russel, 2006).

Most arbitral institutions set a timeframe—generally between 12 and 18 months—within which an award must be rendered, and global recognition of the award follows accordingly. Like many general rules, this one is subject to pressures: experienced arbitrators and international arbitral institutions have become sensitive to the need for timely delivery, and extensions are becoming less routine. One reason for delays is the challenges that parties raise during the arbitration process itself (Russel, 2006).

Benefits of International Arbitration Over Litigation

International arbitration can enable the resolution of a multi-party, multinational dispute through a single, neutral forum. Litigation, by contrast, may require parties to pursue their claims simultaneously in multiple courts across multiple jurisdictions. Beyond this, a major advantage of international arbitration is the global enforceability of arbitral awards, as described above (Rozas, 2005).

International arbitration is also considerably more flexible than litigation. It is frequently more efficient because it employs customized and adaptable procedural rules. Issues that are difficult to resolve within rigid litigation frameworks—such as choice of law, language, discovery, and evidentiary rules—can be anticipated and addressed when drafting the arbitration agreement. Discovery is generally more limited in arbitration, making proceedings more streamlined than in international litigation (Rozas, 2005).

International arbitration provides a neutral forum for resolving international disputes (Grantham, 1996). Parties may be reluctant to submit a dispute to a foreign legal system with which they are unfamiliar—whether because of language barriers, an unfamiliar legal tradition, or distrust of foreign political and economic systems. Commercial arbitration allows the parties to select a forum they consider impartial and discreet.

When properly administered, international arbitration should deliver a final decision in a fraction of the time required by domestic court litigation. The rules of leading institutions typically set a deadline for the panel to render an award. The International Chamber of Commerce (ICC), for example, requires an award to be rendered within 12 months of the finalization of the terms of reference. Time limits may be extended, but arbitral panels today are strongly encouraged by institutions and parties to move proceedings forward efficiently (Rozas, 2005).

International arbitration may also prove less expensive than litigation, particularly where multiple national courts would otherwise be involved. Generally, however, international arbitration costs tend to be higher than domestic arbitration. Even so, international arbitration is typically more cost-effective than international litigation (Philip, 1997).

International arbitration tends to be less adversarial than international litigation and may better preserve business relationships and networks, given its more cooperative and transparent approach to dispute resolution (Rozas, 2005).

Arbitration is increasingly accepted by the majority of countries around the world. In the United States—and in some other countries—arbitration was historically viewed as an improper or even illegitimate mechanism, on the ground that it sought to oust the courts of their jurisdiction (Brower, 1995). Today, however, it is the preferred method in the United States and throughout much of Western Europe (Grantham, 1996). A substantial number of nations have formally accepted international commercial arbitration as a standard practice by ratifying the New York Convention (Russel, 2006). Arbitration may be especially well-suited to many Asian countries, where legal tradition disfavours adversarial litigation. Even some South American and Middle Eastern countries that had historically been resistant to international arbitration—such as Egypt and Brazil—have now embraced international commercial arbitration (Martin, 1997).

Conclusion

Despite the fact that anti-suit injunctions are issued recurrently—particularly by U.S. and British courts—this does not occur without significant controversy within the international legal community, particularly when the order is aimed at enjoining the commencement or continuation of proceedings in foreign countries. Pursuing such an injunction to prevent a party from seeking redress in the courts of another sovereign nation is an inherently aggressive action. It is widely regarded as an affront to the sovereignty of the foreign state (Bermann, 1990) and as an offense against the principle of international comity, thereby "creating potential for embarrassing the political branches of government and disturbing our relations with that country" (Bermann, 1990).

References

Allen B. Green & Jamie L. Boucher. (1998). "International Arbitration: The Spike in Mergers Is Prompting U.S. Courts to Compel Corporate Parties Who Have Not Signed Any Arbitration Agreements to Arbitrate International Disputes." N. AT'L L.J. at B4.

Bermann, G.A. (1990). The Use of Anti-Suit Injunctions in International Litigation. 28 Colum. J. Transnat'l L. 589–628.

Brower, C.H. II. (1995). "What I Tell You Three Times is True: U.S. Courts and Pre-Award Interim Measures Under the New York Convention." 35 VA. J. INT'L L. 971, 976. Congress passed the Federal Arbitration Act in 1925 to reverse this view. Federal Arbitration Act, §§ 1–15, 43 Stat. 883, 883–85 (1925) (codified as amended at 9 U.S.C. §§ 1–16 (1988)).

Bühring-Uhle, C., Kirchhoff, L., and Scherer, G. (2006). Arbitration and Mediation in International Business 17 (Kluwer Law International, 2d ed.).

China Trade and Dev. Corp. v. M.V. Choong Yong. 1987. 837 F.2d 33, 35 (2d Cir.).

Coopers v. Ateliers De La Motobecane, S.A., 57 N.Y.2d 408, 414 (N.Y. 1982).

Gaillard, E. (2008). Anti-suit Injunctions Issued by Arbitrators, in International Arbitration 2006: Back to Basics? 235 (Albert Jan Van Den Berg ed.).

Grantham, W. (1996). "The Arbitrability of International Intellectual Property Disputes." 14 BERK. J. INT'L L. 173, 177.

Martin, J.A. (1997). "Arbitrating in the Alps Rather Than Litigating in Los Angeles: The Advantages of International Intellectual Property-Specific Alternative Dispute Resolution." 49 STAN. L. REV. 917, 958.

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985).

Peter, J.T. (1997). "Med-Arb in International Arbitration." 8 AM. REV. INT'L ARB. 83, 87.

Raphael, T. (2008). The Anti-Suit Injunction 4 (Oxford University Press).

Rozas, J.C.F. (2005). Anti-suit Injunctions Issued by National Courts—Measures Addressed to the Parties or to the Arbitrators, in IAI Series on International Arbitration No. 2, Anti-Suit Injunctions in International Arbitration 73 (E. Gaillard ed.).

Russel, J.W. (2006). International Litigation and Arbitration 605 (Carolina Academic Press, 5th ed.).