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Arbitration in International Commercial Transactions

Fri, 04/22/2016 - 09:09 -- admin25

by Richard Gallagher

While traditional methods such as negotiation, mediation, conciliation, and litigation account for much of the dispute resolution activity with regard to domestic as well as international commercial transactions, international arbitration, which has long played a significant role in civil law jurisdictions, is becoming more commonplace in general and is overwhelmingly the preferred method of dispute resolution in the international energy industry.

International arbitration may be used alone or in conjunction with conciliation or mediation, is accepted as being more “user-friendly,” and is significantly faster and cheaper than the other methods. The parties get to choose the language, location, rules of procedure, governing law, and the extent of confidentiality relative to the very existence of the dispute, as well as the issues and facts in dispute. To some extent, the parties also get to choose the arbitrators. While critics of international arbitration point to rising costs, it is unquestionably both less costly and less time-consuming than U.S.-style litigation

“Awards” in arbitration are intended to be final, binding and enforceable and not subject to appeal based on alleged errors of law or fact, except in limited circumstances such as arbitrator fraud or corruption. Awards are generally required to be “reasoned” and “in writing” and the determination of factual and legal issues will typically be made by a panel of 3 professionals—not “civilians.” Significantly, current practice calls for the arbitrators to be “independent and impartial.”  

Awards are largely determined based on written submissions but “hearings” are also a common feature. Problems frequently develop when parties or counsel try to change arbitration into litigation by attempting to utilize traditional U. S. discovery methods such as interrogatories, depositions, etc. Civil law countries are not favorably disposed to U.S. litigation and such efforts are frequently rebuffed, with the arbitrator(s) determining just how much discovery is “enough.”

“International arbitrations” may be between private parties, a private party and a State, or between States. Like domestic arbitration, international arbitrations may be conducted on an “ad hoc” or “institutional” basis; in “institutional” arbitration, the administrative functions are handled by any of a host of ADR institutions. While there are many dozens of such institutions, the most well-known are the International Centre for Dispute Resolution (an arm of the American Arbitration Association), the International Chamber of Commerce, the London Court of International Arbitration, and the Stockholm Chamber of Commerce.

The legal structure under which an international arbitration can be conducted may arise from a dispute resolution clause contained in an underlying contract, a separate “Arbitration Agreement” between the parties, or by the parties’ election to initiate proceedings under any of a number of international or regional Conventions (such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States), investment multilateral trade agreements, or bi-or multi-lateral investment treaties. Where the basis for an international arbitration is the underlying contract, the importance of studied foresight and skillful drafting cannot be overemphasized.

It is not surprising that a number of different sets of laws may apply to a given arbitration. Importantly, arbitrations are subject to the procedural laws of the place of the arbitration (the “lex arbitri”). Also, the United Nations Commission on International Trade Law (UNCITRAL) has a “Model Law” which many countries have adapted for use which may come into play. The law agreed to in the “Governing Law” or “Dispute Resolution” clause will certainly apply. For arbitrations in the U.S., the Federal Arbitration Act encourages and protects the arbitral process and, close to home, the Texas General Arbitration Act may also have application.

There are a number of international conventions, such as the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), that may also be applicable with respect to enforcement of an award. Similarly, various Regional Conventions such as the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”), the European Convention, the Moscow Convention, and the Arab Convention on Commercial Arbitration may find application in certain instances.

As can be seen from this “glimpse,” international arbitration is a very viable and interesting method of resolving disputes (and enforcing awards) between two or more private parties and/or States with respect to international commercial transactions.

Richard Gallagher is a solo practitioner and can be reached at: jrgallaghe@aol.com.

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