Roundtable: International Arbitration
Article, Financier Worldwide – June 2013
Legal / Disputes
Arbitration is one of the most commonly used resolution methods in international disputes today where the differences in legal and cultural norms can create challenges for all parties.
Most companies understand the benefits of resolving cross-border disputes through arbitration. When disputing parties from different legal cultures come together, numerous challenges arise. Arbitration can be used to overcome the problem of unfamiliar foreign legal systems and language barriers, although this normally requires a carefully drafted arbitration clause in the commercial agreement to underpin the process. It is crucial, therefore, to negotiate clear and enforceable arbitration clauses into international business agreements.
In your opinion, to what extent is arbitration the preferred method of resolving international/ cross-border commercial disputes? Are there any recurring themes at the core of recent arbitration cases?
In my experience as a forensic accountant, an expert witness and an arbitrator, I see arbitration frequently favoured over litigation because international companies often operate in a wide variety of countries, all with different legal systems. The use of arbitration offers some certainty in resolving disputes without the company having to fully understand the nuances of the legal framework of each country in which it operates. Arbitration allows the parties involved to decide upon the governing laws and language under which the arbitration will take place, regardless of the geography of the dispute or the proceedings.
How important is it to insert clear arbitration clauses into business contracts and agreements, to manage disputes if and when they surface down the line? Do companies pay sufficient and timely attention to this issue when negotiating new ventures?
As a forensic accountant, I am not involved in the development of business contracts and agreements; however, I do see it as an imperative to include clear clauses within those agreements as to how disputes will be resolved if and when they arise. Our legal and alternative dispute resolution systems across the globe are filled with cases each year in which companies find themselves embroiled in conflict. In a multinational dispute, there are often many issues at stake in the dispute including how and where the dispute will be settled. This seems to be evidence that companies do not pay sufficient attention to this issue when negotiating new ventures.
What factors often influence parties in their choice of arbitration over litigation? Could you outline some of the key benefits of the arbitration process for those involved?
There are a number of general factors that typically cause parties to choose arbitration over litigation. These include: confidentiality, speed of the process and cost. However, speed and cost can be illusory in arbitration proceedings if they are not tightly managed. If the cost of arbitration is not closely controlled, it could easily escalate to a level where arbitration proves less cost effective than litigation.
A key factor in selecting arbitration is the party’s ability to choose their own arbitrators, rather than to rely on a judicial assignment in a country in which a company is operating. This affords both parties the benefit of selecting an arbitrator or arbitration panel that is knowledgeable of the types of issues or industries at hand. A commercial understanding of the relevant industry sector can help expedite proceedings.
The parties are also able to choose the law that will operate irrespective of where the arbitration takes place. Another key benefit is that in established markets, arbitration provides certainty and enforceability for the parties involved.
What processes and procedures account for most of the costs in the arbitration process? What steps might parties (and arbitrators) take to control these costs?
In my view, much of the cost in arbitration, as in litigation, is accounted for in disputing a wide range of issues which could give rise to a vast amount of disclosure of documents. Oftentimes, there is not a single point of contention that gives rise to arbitral proceedings, but an array of issues that are being disputed. In exploring the cause and effect and context of each issue, the amount of information and documentation being disclosed by each side can escalate. The physical nature of a document exchange and review can take up a large portion of the arbitration budget. If costs are to be controlled, disclosure may have to be limited and / or more focused on the specific issues, limiting the scope of the disclosure.
What particular challenges arise when disputing parties are resident in different jurisdictions? What practical steps can parties take to deal with these issues?
The challenges faced in a multinational arbitration when parties are located in different jurisdictions are many of the same challenges associated with conducting business in different jurisdictions. Language barriers, technology differences, cultural differences and operating across multiple time zones all contribute to the challenges faced in the dispute. This is why it is important for the rules of the arbitration to be set forth clearly at the outset, including the governing law and procedural rules of the arbitration agreed to by all parties.
As an arbitrator, I strive to make myself available to the parties and to be accommodating when possible as to scheduling proceedings and making use of technological advancements such as video conferencing when needed.
To what extent are arbitral facilities and processes in emerging regions improving and strengthening? What challenges remain for parties entering arbitration in these regions?
Arbitral facilities and processes are improving and strengthening in emerging regions. There appear to be more countries embracing the arbitration process and many of them are gearing up to provide arbitration facilities. For parties entering into arbitration in emerging regions, one particular challenge is likely to be uncertainty as to how the processes might operate. The rules of arbitration vary under each of the established international institutions and rule making bodies, and in emerging regions these rules may not yet be fully developed and accepted.
As practices develop and evolve, what are some of the key issues that you would expect to dominate discussions on arbitration over the months and years ahead?
As an arbitration practitioner involved mainly in quantum of disputes, I am still surprised at the amount of time devoted to the liability issues in a case and how little attention is paid to quantum. Very often quantum is left until quite late in the process and only then do the parties start to gain a real understanding of the amounts in dispute, which could be very different from the initial sums indicated. It would be more cost effective to address quantum early on so as to get a better understanding of the amounts involved, rather than leaving this until much later in the process.
These answers are an excerpt from a larger roundtable discussion with Tony Levitt and seven other experts in this field. Read the entire roundtable discussion here.
Tony Levitt is a founding partner of RGL Forensics, a leading forensic accounting and consulting firm. In addition to being a chartered accountant, he is also an accredited expert witness and a chartered arbitrator. Mr Levitt acts as an expert witness and presides over arbitration proceedings in cases where quantum is in dispute. His assignments take him to the United Kingdom, Europe, Middle East, Far East, Australia, Africa and North and South America.
As appeared in Financier Worldwide, International Arbitration Roundtable, June 2013.