Commercial arbitration is a process through which businesses can resolve disputes without going to court. Experts like Zuko Nonxuba in Johannesburg, South Africa, say arbitration is often faster and cheaper than a traditional trial. It allows the parties to choose their arbitrator (or arbitrators) instead of having a judge impose a decision.
There are many advantages of commercial arbitration, especially when it comes to international disputes. This article will explore the top seven benefits of arbitrating an international commercial dispute.
Avoidance of Local Bias
Arbitrators familiar with the law of more than one jurisdiction are often better equipped to deal with international disputes than local judges. Moreover, parties to a global conflict may have confidence in the fairness of an arbitral tribunal that includes members from different countries.
Zuko Nonxuba says this is not to say that international arbitration is immune from local bias. However, the risk of regional bias minimizes by selecting arbitrators from different countries or stipulating in the arbitration agreement that the arbitral tribunal must apply the law of a specific jurisdiction.
Enforcement of Arbitral Awards
Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), arbitral awards rendered in one contracting state can be enforced in another contracting state. As of September 2017, 159 countries were parties to the New York Convention. Thus, there is a strong possibility that an arbitral award rendered in one country will be enforceable in another country.
There is no guarantee of the enforceability of arbitral awards, however. In some countries, prizes may be set aside if the courts find that the arbitral tribunal exceeded its authority or violated public policy.
Flexibility
The flexibility of arbitration allows the parties to tailor the rules and procedures of the arbitral proceeding to fit their needs. For example, the parties can agree on the language(s) to be used in the arbitral proceedings, the number of arbitrators, and whether or not to take evidence orally or in writing.
Zuko Nonxuba says some arbitral institutions, such as the International Chamber of Commerce (ICC), have their own rules that the parties can choose to adopt. However, even when the parties assume the powers of an arbitral institution, they can still agree to modify those rules to fit their needs.
Confidentiality
Arbitral proceedings are generally confidential. The information disclosed during the proceedings is not public unless both parties agree otherwise. In contrast, court proceedings are open to the public.
Regarding international disputes, confidentiality is often essential for parties that do not want sensitive information about their businesses made public.
Speed
Zuko Nonxuba says arbitral proceedings are generally quicker than court proceedings, because they are not subject to many procedural rules that govern court proceedings ― such as service of process, Motions Days, etc.
Speed is often crucial in international commercial disputes because the longer a dispute drags on, the more money the parties will have to spend on legal fees.
Cost-Effectiveness
Arbitration is generally less expensive than litigation, because it does not require attorneys to prepare for and attend numerous hearings and because discovery (the process through which each party requests evidence from the other party) is usually more limited in arbitration than litigation.
This is not to say that arbitration is always less expensive than litigation. Arbitration can be just as expensive as litigation if the parties choose to use an arbitral institution with high filing fees or if the parties choose to have their arbitral proceedings take place in a country with high hourly rates for attorneys.
Predictability
Parties to an arbitration often have greater certainty about how their dispute will be resolved, because they can select their arbitrator (or arbitrators), who will render a binding decision on the dispute’s merits. Moreover, if the parties choose, they can agree in advance on applicable laws and rules of procedure.
Sometimes, however, the predictability of arbitration can be its downfall. For example, if the arbitrator(s) selected by the parties is not impartial, or if the arbitrator(s) make a legal error, the parties may find themselves in the same position they would be in if they had litigated their dispute.
How to Begin Arbitration
The first step in beginning an arbitration is to select an arbitral institution. The ICC, American Arbitration Association (AAA), and London Court of International Arbitration (LCIA) are some of the most popular arbitral institutions. After selecting an institution, the parties must agree on the rules of the arbitral proceedings.
After agreeing on the rules, the next step is to select the arbitrator (or arbitrator). Most arbitral institutions have a list of arbitrators from which the parties can choose. After selecting an arbitrator, the arbitral proceedings begin.
Arbitration is a cheaper, quicker, and more predictable way to resolve commercial disputes than litigation. However, it is not without its drawbacks. Before beginning arbitration, parties should be aware of both the benefits and the risks associated with this dispute resolution.
Conclusion
As you can see, there are many advantages to resolving commercial disputes through arbitration — especially when those disputes involve companies from different countries. If you find yourself involved in such a dispute, you should consider whether arbitration might suit you.
