International Arbitration: Lecture 1

International Arbitration: Lecture 1
Matteo Zambelli
[email protected]
University of West London
School of Law
1
Overview
A. Arbitration: a historical note.
B. What is arbitration?
C. Arbitration vs litigation and ADR.
D. When should be arbitration be used?
E. Q&A.
2
Arbitration: a historical note
The expansion and globalisation of cross-border investment and trade has led to
increased and ever more complex relationships between businesses, investors,
and States.
As, inevitably, some of those relationships break down, parties need to consider
(preferably at the outset of the relationship) the best means of resolving any
disputes which may arise. In many cases, that will be arbitration.
“Commercial arbitration must have existed since the dawn of commerce. All trade
potentially involves disputes, and successful trade must have a means of dispute
resolution other than force.” Lord Mustill, ‘Arbitration – History and Background’ in
the Journal of International Arbitration (1989).
3
(cont.)
Since commerce was almost unregulated in legal systems in the 10th and 11th
centuries, the guilds of merchants started to create their own system of law
building upon shared common legal principles: the
lex mercatoria. This difference
was recognised by the national systems: i.e. under the Fleta Laws of 1290 (a
treatise on the common law in England) it was stipulated that merchants were not
subject to standard laws and rules but were considered to have a different status.
According to such a framework disputes between merchants were generally
solved within the guilds. The execution of the decisions was assured by the
reputation of the merchants involved since a loss of reputation generally resulted
in expulsion from the guild.
Subsequently states started to “nationalise” dispute settlement procedures.
4
(cont.)
Up to the 18th century the fundamental weaknesses in private arbitration
were:
The agreement to arbitration was considered to be a revocable mandate. This allowed a party
to frustrate any attempt to reach an agreement is he or she so wished.
There was no system of keeping the parties in an arbitration. If one party decided to set aside
arbitration and litigate in a formal court he or she was free to do so.
There was no mechanism to enforce an award made through arbitration.
The Common Law Procedure Act of 1854 changed things by including the
concept of arbitration ‘pursuant to a rule of court’ where the court employed
its judicial power to refer a complex matter to arbitration. This reference
being an extension of the ruling of a formal court allowed the court to employ
its penal powers to ensure compliance with an award made through
arbitration. This new approach to commercial arbitration arrived at an
opportune moment for English commerce for it was expanding throughout
the world (and commercial arbitration with it).
5
(cont.)
In in 1958 more than 30 years after the Geneva Convention on the Execution of
Foreign Arbitral Awards (supplemented by the Geneva Protocol on the recognition
of arbitration agreements), delegates met at a three-week long diplomatic
conference at the UN to discuss a draft convention on arbitral awards.
The resulting 1958 New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards combined two key elements (awards and agreements)
with a view to providing a comprehensive and effective mechanism for recognising
and enforcing awards.
In 1998, Robert Briner (then Chairman of the International Court of Arbitration of
the ICC), summed up the basic rationale for the existence of the Convention: “to
serve international trade and commerce.”
As of February 2022, the Convention has 169 state parties, which includes United
Nations member states plus the Cook Islands, the Holy See, and the State of
Palestine.
6
What is modern arbitration?
Arbitration is an alternative to litigation as a means of resolving disputes. It is
based on the parties’ agreement: all parties must agree to submit the dispute in
question to arbitration.
Arbitration is a private forum in which an independent arbitrator or a tribunal
makes an award, acting in a judicial fashion, to finalise the dispute. Like a
judgement the outcome (the award) is final and binding on the parties.
The State requires the parties to honour their contractual obligation to arbitrate,
provides for limited judicial supervision of arbitral proceedings, and supports the
enforcement of arbitral awards in a manner similar to that for national court
judgments.
7
(cont.)
Arbitration typically involves an adversarial process before arbitrators (comprising
an arbitral tribunal) who decide the dispute, as would a judge, on the basis of
(usually) the law, the facts and the evidence. But there is no “one size fits all”
approach. By its nature, arbitral procedure is consensual: it is open to the parties
to agree exactly how and when they present their respective cases to the tribunal.
The management of the arbitration falls largely to the arbitrators: they will be
guided by any rules which the parties have chosen to govern the process and/or
by the arbitration law of the seat of arbitration but they will also be influenced by
their own legal culture and by their past (often extensive) experience of acting as
counsel or arbitrator in other cases.
In consequence, modern arbitral practice is typically a unique hybrid of common
law and civil law practices.
8
(cont.)
The arbitrators are generally selected by the parties (either directly or
indirectly through a third party or institution) and, as a result, the parties
maintain some control over who is to determine their dispute. Arbitrators
in international cases are usually very experienced lawyers and/or
experts in the field in which the dispute has arisen.
9
International commercial arbitration
International: the dispute involves two or more parties from different states (or
otherwise involves foreign elements) and is decided, in a final and binding
manner, by private tribunals, rather than litigated in national courts.
According to article 1(3) of the 1994 UNCITRAL Model Law on International
Commercial Arbitration, “
An arbitration is international if: (a) the parties to an
arbitration agreement have, at the time of the conclusion of that agreement, their
places of business in different States; or (b) one of the following places is
situated outside the State in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration
agreement; (ii) any place where a substantial part of the obligations of the
commercial relationship is to be performed or the place with which the subjectmatter of the dispute is most closely connected; or (c) the parties have expressly
agreed that the subject matter of the arbitration agreement relates to more
than one country
.”
10
(cont.)
According to the French Code of Civil Procedure (CCP), an arbitration is
international “when international trade interests are at stake” (Article 1504, CCP).
This article lays down an economic criterion of “internationality” rather than a
legal/formal one, in line with France’s pro-arbitration approach.
This criterion is broad and covers a wide variety of disputes. French courts have
explained that the domestic or international nature of an arbitration does not
depend on the applicable law, seat of the arbitration, parties’ intentions, or their
nationalities, but on the nature of the underlying economic transaction or relation,
which must involve more than one state (Paris Court of Appeal,
SARL Carthago
Films v SARL Babel Productions
(29 March 2001)). In short, to qualify as
international within the meaning of French arbitration law, the dispute must involve
a tangible or intangible cross-border transfer of goods, services or funds (Paris
Court of Appeal,
Agence Transcongolaise des Communications-Chemin de fer
Congo (ATC-CFCO) v Compagnie Minière de l’Ogooue-Comilog S.A.
, Case No
95/80283 (1 July 1997)).
11
(cont.)
Importance of the “International” element: in the US, the Supreme Court
decided in Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc 473
U.S 614, 105 S Ct 3346 (1985)
that, despite the well-established
principle that anti-trust laws were not arbitrable, it would uphold the
arbitration clause in an anti-trust case that involved international parties.
The court stated: “Respondent’s anti-trust case are arbitrable pursuant to
the Arbitration Act. Concerns of
international comity, respect for the
capacities of foreign and transnational tribunals, and sensitivity to the
need of the international commercial system for predictability in the
resolution of the disputes all require enforcement of the arbitration clause
in question even assuming that a contrary result would be forthcoming in
the domestic context
.”
12
(cont.)
Commercial: the term “commercial” should be given a wide
interpretation so as to cover matters arising from all relationship of a
commercial nature, whether contractual or not. Relationship of a
commercial nature include, but are not limited to, the following
transactions: any trade transaction for the supply or exchange of goods
or services; distribution agreements; commercial representation or
agency; factoring; leasing; construction of works; consulting;
engineering; licensing; investment; financing; banking; insurance;
exploitation agreement or concession; joint venture and other forms of
industrial or business corporation; carriage of goods or passengers by
air, sea, rail or road. Note to article 1(1) of the 1994 UNCITRAL Model
Law on International Commercial Arbitration.
13
(cont.)
Arbitration is an alternative to litigation as a means of resolving disputes. It is
based on the parties’ agreement: all parties must agree to submit the dispute in
question to arbitration.
An arbitration agreement or clause is a contract for the resolution of disputes
between the parties by arbitration rather than by court proceedings. The parties
thereby agree to refer disputes between them for a binding decision by one or
more persons chosen by the parties (or through a mechanism provided by the
parties) after a private hearing process. Section 6 of the Arbitration Act 1996
defines “
arbitration agreement” as an agreement to submit “present or future
disputes”.
Dispute” for the purposes of the Arbitration Act 1996 is to be interpreted broadly.
The fact that there is no arguable defence to a claim does not mean that there is
no “dispute”. One illustrative example which is often cited is that given by Saville J
in
Hayter v Nelson and Home Insurance Company [1990] 2 Lloyd’s Rep 265,
where two people are arguing about who has won the boat race: the correct
answer is easily demonstrable, but there is nevertheless a “dispute”.
14
Arbitration vs litigation and ADR
Arbitration is not merely a private way of resolving disputes, away from the
publicity of national courts, without pomp, arcane practices, wigs, robes or ushers,
it is truly an “alternative” (to litigation) method of dispute resolution.
Arbitration differs fundamentally from litigation in the following ways:
Contractual basis. Apart from statutory arbitration, the basis of arbitration is
contract. The rights and obligations of the parties to arbitrate their dispute
arise from the arbitration agreement they have concluded.
Seat. The parties usually choose where the arbitration is to take place.
Procedure. The parties can also choose rules to govern the procedure of the
arbitration.
15
(cont.)
Appointment. The parties may have some choice in the arbitral tribunal.
Confidentiality. Arbitration proceedings are usually confidential.
Tribunal’s powers. The arbitral tribunal’s powers derive from the arbitration
agreement, as supplemented by any applicable legislative provisions.
Jurisdiction of arbitrators. Usually the arbitral tribunal may decide on its
own jurisdiction, but that decision is subject to review by a court at the seat of
arbitration.
16
(cont.)
Finality. Decisions on the merits of the dispute by an arbitral tribunal are
usually final and not subject to appeal, although the award may in exceptional
circumstances be set aside by a court at the seat of arbitration.
Enforcement of awards. Decisions of an arbitral tribunal are widely
enforceable abroad by virtue of several conventions, in particular the New
York Convention.
Some practitioners (particularly in the US) refer to arbitration as a form of
alternative dispute resolution (
ADR). However, the acronym ADR is more
often used to describe non-binding procedures (such as mediation),
thereby distinguishing between litigation and arbitration on the one hand,
and ADR on the other.
17
(cont.)
Non-binding procedures are not really an “alternative” to litigation and
arbitration because, unless the parties reach a settlement, they must still
resort to a binding procedure, such as arbitration or litigation, to resolve their
dispute. This has caused some to redefine ADR as “amicable dispute
resolution”, thereby emphasising that
mediation and related approaches
depend upon the voluntary cooperation and agreement of the parties.
Arbitration is also to be distinguished from binding expert determination.
As the procedures for both can largely be prescribed in the parties’ contracts,
they can take very similar forms.
Expert determination: is an informal process that produces a binding
decision. An expert is appointed by the parties to determine an issue, usually
of a technical nature. As an expert’s decision is an evaluation, this approach
is treated as having different legal characteristics to an arbitration award.
Accordingly, the procedure is not subject to arbitration legislation and the
supervision of the court.
18
(cont.)
On a decision-making level, the distinction is that whilst the arbitrators may be
selected for their experience in particular fields, they are tasked with deciding the
dispute primarily upon the basis of the parties’ submissions and the applicable
law, whereas experts use their own knowledge to come to their decision.
The distinction between arbitration and expert determination can be very
important because, whereas arbitration is normally regulated by national
arbitration laws, which safeguard the constitution of the tribunal and the procedure
followed, expert determination is virtually unregulated. In the international context,
arbitration also benefits from enforcement conventions that allow the direct
enforcement of awards.
The decisions of experts only have the force of contract and, to enforce them,
parties must bring a new action in the appropriate jurisdiction for breach of
contract.
19
(cont.)
Unless the parties reach a settlement, ADR will not give rise to any binding
judgment or award. Parties may withdraw from ADR before reaching any
settlement, or the ADR may conclude without any settlement being reached,
giving rise in such cases to wasted costs. Furthermore, and by contrast with
arbitration, there is at present no statutory regime in support of ADR. Parties who
are not comfortable with this relative lack of structure may prefer to arbitrate or
litigate, or possibly to adopt two-tiered or hybrid procedures.
In England and Wales solicitors have a duty to advise their clients about
mediation. This coupled with ADR requirements in the pre-action protocols, the
CPR and court guides, along with certain court schemes, means that mediation is
something which must be considered in every case. The costs risks of
unreasonably refusing to mediate or not responding to a mediation proposal may
be severe. In
Paragon Finance Plc v Pender & another [2003] EWHC 2834 (Ch),
an application for permission to appeal, the court expressed concern over the
modest sums involved and the fact that the defendant’s home was at risk due to
the costs which would be incurred if the proceedings continued. The court urged
the parties to attempt ADR and retired to give the parties an opportunity to do so.
20
When should Arbitration be used?
Parties should consider whether or not to provide for arbitration every
time they enter into a contract. It may be particularly important if the
parties (or their assets) are in different jurisdictions or if disputes might
give rise to complex technical issues.
Practitioners commonly refer to the “advantages and disadvantages” of
arbitration. However, whether any given feature of arbitration is an
advantage, a disadvantage, or of no interest to a party is entirely
dependent upon its objective.
21
(cont.)
Enforceability: Due to international conventions, the potential for enforcing
arbitral awards worldwide is much greater than that for court judgments.
There is little point in obtaining a court judgment that cannot be enforced against
suitable assets, this feature often conclusively determines the choice of arbitration
for international contracts.
The most important enforcement convention is the 1958 United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(known as the New York Convention).
166 countries are party to the New York Convention, each of which broadly
agrees to enforce arbitral awards made in other contracting States subject only to
limited grounds for objection. There is no such wide-ranging convention providing
for the enforcement of court judgments (the closest being the Recast Brussels
Regulation, which is limited to Member States of the European Union).
22
(cont.)
Neutrality: a party to an international contract will often wish to avoid resolving
disputes through the local courts of another party. Arbitration provides the
opportunity for neutral dispute resolution (e.g., with international rules being
applied by a multinational tribunal in a mutually acceptable venue).
Confidentiality: although the degree of confidentiality afforded by the arbitration
law of different jurisdictions (absent express provision by the parties) varies, there
can be no doubt that arbitration provides greater privacy and confidentiality than
litigation (which is often public). Few arbitration rules deal with confidentiality (the
London Court of International Arbitration Rules are an exception in this regard) so
if parties want to make provision for confidentiality, they need to do so in their
arbitration agreement. However, if enforcement through the courts becomes
necessary, confidentiality might be put at risk by the court process, and parties
must pay regard to any mandatory reporting obligations
23
(cont.)
Technical expertise and experience: the parties can select arbitrators with
relevant expertise or experience. Although some jurisdictions have very good
specialist courts (e.g., the Commercial Division of the New York Supreme Court
and the English Technology and Construction Court), in others, parties run the
risk of their dispute being decided by a judge with little or no relevant experience.
Procedural simplicity and flexibility: arbitration rules are generally far simpler
and more flexible than court rules. As a result, they are relatively easy to
understand for parties of different nationalities, the proceedings are more easily
focused on the substantive issues and the parties are better able to adapt the
dispute resolution process to suit their relationship and the nature of their
disputes. In many cases, parties (or tribunals exercising discretion left to them by
the parties) choose to follow a procedure that is similar to court procedures,
although parties might change, for example, the scope of disclosure or waive
rights of appeal. However, in some cases, parties go much further, waiving the
right to an oral hearing or empowering the tribunal to decide according to
principles of fairness rather than according to the law.
24
(cont.)
Cost: there is no simple answer as to whether arbitration is cheaper than
litigation. As legal fees generally account for the majority of the costs of
proceedings (whether arbitration or litigation), the controlling factors are largely
the complexity of the dispute, the way the proceedings are conducted and their
length. In arbitration, parties must pay for the arbitrators, any administering
institution, and the hiring of venues for hearings. On the other hand, there are no
court fees and parties are free to agree to a process tailor-made for their dispute.
This might be, for example, a streamlined, “fast track” procedure (although
inflexible and unrealistic schedules can be problematic). Significantly, parties
normally agree that there is no right of appeal (on the merits) from any award
(potentially saving years of further proceedings).
England is unusual in having a limited right of appeal on a point of English law, but
even this is usually excluded in international arbitration agreements. In most
jurisdictions, courts may only review awards for strictly limited reasons, such as
alleged procedural irregularities or jurisdiction issues. International arbitral
tribunals are generally empowered to award the successful party the majority, or
at least a measure, of its costs, although practice varies depending on the
applicable rules/law and the composition of the tribunal.
25
(cont.)
Pre-emptive remedies: arbitral tribunals are often empowered (by the parties or
the applicable law) to grant preliminary relief, such as an order freezing assets. In
addition, many arbitration rules provide for the appointment of an “emergency
arbitrator” to consider any application for interim relief before an arbitral tribunal
has been constituted to determine the substantive dispute.
No arbitral tribunal or emergency arbitrator can impose criminal sanctions upon a
defaulting party or bind third parties. In order to enable parties to obtain effective
relief, arbitration rules/laws commonly allow parties to apply to courts for interim
relief (as distinct from a hearing of the merits of the case) if this is not available
from the tribunal (for example, because this has not been constituted) or an
emergency arbitrator (for example, because third parties are involved).
26
(cont.)
Joinder of parties and related disputes: in contrast to court proceedings,
generally all parties must consent before additional parties or related disputes can
be joined to an existing arbitration. Whilst a few national legal systems (e.g., the
Netherlands) allow parties to apply to the courts to order a third party to be joined
to an arbitration, this is unusual. Some arbitration rules make limited provision for
joinder.
If consideration is given to this issue at the time the contract is drafted, the
difficulty can be addressed by express provisions in the arbitration agreement. In
essence, such provisions record the parties’ consent to joinder in advance of the
situation arising, and set out a procedure for the joinder to take place. In multicontract and/or multi-party transactions, provisions for joinder can become
complicated and require considerable care in drafting. However, if provision is not
made before a dispute arises, it will often be difficult to obtain the consent of all
parties because of their differing self-interests. In such circumstances, relevant
parties will have to decide whether or not to pursue separate proceedings in
relation to the third party.
27
(cont.)
Default judgment: in some court proceedings, judgment can be made against a
party that has transgressed the rules of the court procedure without the court
ruling formally on the merits of the dispute. This is generally not available in
arbitration.
Even if a party has committed serious procedural defaults or has completely
ignored the arbitration process, institutional arbitration rules and national
arbitration laws generally require that an arbitral tribunal still examine the merits of
the claim based on whatever evidence has been put before it.
If insufficient evidence has been provided to prove a claim to the necessary
standard, the claim will still fail, regardless of the opposing party’s procedural
defaults.
28
(cont.)
Summary judgment: there is no exact equivalent in arbitration of applications for
summary judgment (in the English courts) or motions to dismiss (in the US
courts). However, arbitral tribunals may adopt shortened procedures in certain
cases. I.e., in cases such as simple loan defaults, the arbitral tribunal may feel
that it is unnecessary to hear full evidence or even conduct an oral hearing.
Arbitral tribunals have traditionally been more reluctant to adopt summary
procedures than some courts, perhaps in part due to the lack of an appeals
mechanism. However, in order to encourage more tribunals to take this step in
appropriate cases, some institutional rules (e.g., those of the Singapore
International Arbitration Centre) now expressly provide for a form of summary
procedure if the tribunal considers that a claim or a defence “manifestly lacks legal
merit”. Parties may also make express provision for a summary procedure in their
arbitration agreement.
29
(cont.)
Appeals: appeals in arbitration are uncommon, as distinct from challenges to the
award, which generally are based on a failure to accord a party due process or
the improper assumption of jurisdiction on the part of the arbitral tribunal. One of
the reasons for arbitration’s popularity is precisely because of the lack of an
appeals mechanism and the certainty generated by the final award.
The English Arbitration Act 1996 is somewhat anomalous by international
arbitration standards, as the act permits parties to appeal points of English law to
the English courts, albeit in limited circumstances.
Parties have the flexibility to exclude this right of appeal in their arbitration
agreement if they wish, and institutional arbitration rules such as those of the
London Court of International Arbitration and the International Chamber of
Commerce do so without requiring further provision.
30
Types of Arbitration
One of the advantages of arbitration is procedural flexibility. Parties are free to
choose their own procedure and they generally do this either by:
Selecting an arbitral institution to support the arbitral process
(
institutional/administered arbitration).
Writing their own procedure (or adopting a set of stand-alone arbitral rules) and relying
on the arbitration law of the seat to fill in any gaps (
ad hoc arbitration).
Ad hoc arbitration: an arbitration agreement which, either by omission or design,
does not require an arbitration to proceed under the auspices of an arbitral
institution is conventionally known as an ad hoc arbitration clause pursuant to
which:
The parties choose the tribunal themselves, without reference to an arbitral institution (however, if the
parties cannot agree on the choice of arbitrator, it is common for the decision to be referred to an
appointing authority).
There is no supervision or support from any institution in relation to the conduct of the proceedings.
There is no review of the award by an arbitral institution.
31
(cont.)
Institutional arbitration: a form of arbitration conducted with the support of, and
according to the rules of, an arbitral institution. The arbitral institution administers
various aspects of the arbitration, such as the appointment of arbitrators, arbitrator
challenges and collection of arbitrators’ fees.
Some of the most commonly encountered arbitral institutions are:
International Chamber of Commerce (ICC).
London Court of International Arbitration (LCIA).
International Centre for Dispute Resolution (ICDR).
China International Economic and Trade Arbitration Commission (CIETAC).
International Centre for Settlement of Investment Disputes (ICSID).
Arbitration Institute of the Stockholm Chamber of Commerce (SCC).
Chamber of Arbitration in Milan (CAM).
Netherlands Arbitration Institute (NAI).
Vienna International Arbitral Centre (VIAC).
World Intellectual Property Organization (WIPO).
32
Advantages and disadvantages of ad hoc arbitrations
There is a tendency for contract negotiators to prefer institutional arbitration due to
its reputation, familiarity, transparent costs and convenience. When deciding
between institutional and ad hoc arbitration, consider the following:
A “good” ad hoc arbitration can be designed (after the dispute has arisen) to meet the needs of the
parties.
Ad hoc arbitrations are more vulnerable to obstructive tactics than institutional arbitrations, which may
have the benefit of the institution acting as intermediary. In an ad hoc arbitration an opponent can
frustrate proceedings relatively easily by delaying or refusing to nominate an arbitrator, or by
challenging the jurisdiction of the tribunal. In an institutional arbitration, by contrast, there may be
mechanisms to prevent a recalcitrant party from frustrating proceedings. For example, the ICC will not
allow an arbitration to continue until the advance on costs has been paid. Such long-stop remedies are
unlikely to be available in an ad hoc arbitration.
The efficiency of an ad hoc arbitration depends on the wording of the arbitration agreement. A poorly
drafted arbitration agreement may require the intervention of the tribunal or national courts.
Arbitral institutions provide access to a large pool of experienced arbitrators.
An award from a respected arbitral institution will benefit from the reputation and standing of that
institution. This may make enforcement easier.
Arguably, ad hoc arbitrations do not have the precedential value of institutional arbitrations.
In ad hoc arbitrations there is a lack of support in policing time limits or appointing arbitrators. Similarly,
there will be no support in resolving challenges to arbitrators other than by reference to local courts.
Costs in ad hoc arbitrations may fluctuate more than costs in institutional arbitrations, where the fees
are published and freely available.
33
Which laws apply in international arbitration?
International arbitration raises complex conflicts of law issues. Different systems
of law may govern different aspects of the arbitration:
The substantive dispute that has been referred to arbitration. The law governing the
substantive issues referred to arbitration is generally described as the “applicable law”,
“substantive law” or “governing law”. Because most disputes are contractual (and
therefore governed by the law of the contract) the term “proper law of the contract” may
also be used in this context.
The arbitration itself, including the procedure of the arbitration and the role of national
courts in supervising or supporting it. The law that governs the arbitration, and the
procedure of the arbitration, is known as the lex arbitri or curial law. It is well established
in international arbitration law that the lex arbitri is the law of the
seat of the arbitration.
The arbitration agreement, including issues about its scope, effect, construction or
validity. Issues relating to the validity, scope and meaning of the arbitration agreement
(including issues as to the scope of the tribunal’s jurisdiction) are governed by the proper
law of the arbitration agreement.
The award, including issues about enforceability, validity and recognition. The question of
whether an award can be challenged or set aside and, if so, on what grounds, is
generally governed by the law of the seat of the arbitration. Ultimately, the recognition
and enforcement of the award will depend on the law in force at the place where
enforcement is sought
34
Managing commercial disputes
Some mechanism for dispute resolution should be incorporated in any contract as
a matter of course, but this is overlooked surprisingly often. Options are:
Informal mechanisms, such as referral of the dispute to senior executives at the
respective companies.
Some form of ADR.
Formal arbitration or jurisdiction clauses and choice of law clauses.
Alternatively, these mechanisms may be combined by including a dispute escalation
clause. This could provide, for example, that if the dispute cannot be settled within a set
period of time, then it should be referred to both parties’ chief executives for mediation,
followed by arbitration or litigation.
A number of issues need to be considered when choosing the correct dispute
resolution mechanism, including:
Choice of law clauses.
Arbitration or litigation?
Whether one party should have an option to choose arbitration or litigation when a
dispute arises.
Exclusive or non-exclusive jurisdiction of the chosen courts?
Alternative dispute resolution.
Enforcement of any judgment or award.
35
(cont.)
Choice of law clauses: if including a jurisdiction clause, it is often preferable that
the system of law that is to govern the contract is the same as that of the dispute
resolution forum, providing you can reach agreement on a well-respected,
predictable and experienced court to have jurisdiction.
Jurisdiction and arbitration clauses: without an effective jurisdiction or
arbitration agreement, the parties will be forced to rely on the rules of private
international law to determine the correct forum for their dispute. This can often
cause serious uncertainty and inconvenience.
I.e. within the European Union, a reasonable degree of certainty is provided by
Regulation (EU) 1215/2012 and Convention 2007/712/EC on jurisdiction and the
enforcement of judgments in civil and commercial matters. Generally, a well
drafted contract should provide for either arbitration or the courts of a chosen
jurisdiction for the resolution of disputes, even if a more informal procedure, such
as mediation, is specified as a precursor.
36
Case strategy
In order to determine the best possible form of dispute resolution which
will be applicable in the circumstances a disputing party, with the
assistance of their legal team, should conduct a cost-benefit analysis and
formulate a case strategy.
The cost-benefit analysis should factor in the fees of the external
lawyers and experts, if instructed. It should also take into account indirect
costs, such as management time. I.e. As a rule of thumb, in English
litigation proceedings, the successful party will normally only recover
from the loser about two-thirds of the costs actually incurred, following a
costs assessment. Indirect costs, such as management time are
generally excluded. In some other jurisdictions (such as the US), legal
fees are not recoverable at all. The winner will normally recover its costs
in arbitration, although awards can vary wildly, depending on the
background of the tribunal and the seat of arbitration.
37
(cont.)
Estimating the case value. The disputing party should also carry out a
realistic assessment of the strength of your case and the potential
quantum of damages that it is likely to recover or pay out. One should
test the weaknesses of the case and the implications of losing. Also the
fact that a large number of cases are settled after proceedings
commence, but before trial ought to be considered. Both parties can
save significant costs if the case is settled before proceedings
commence.
Estimating the case risk. The case strategy should be based on three
basic questions:
What is the objective?
How can it be achieved?
What are the consequences if it is not achieved?
38
Q&A
Any Questions?
39