- International arbitration – know the essentials of international dispute resolution
- International arbitration (IA) plus Alternative Dispute Resolution (ADRs)
- The most popular destinations for international arbitration
- Essential things to keep in mind when choosing the seat of international arbitration
- Rules and procedures in international arbitration
- Arbitral institutions for international dispute resolution
- Which strengths are shared by the most popular arbitration institutions?
- Time and cost of international dispute resolution
International arbitration is a non-governmental (supra-national) court dealing with commercial disputes between parties from different countries. Arbitral institutions should not be confused with arbitral tribunals that adjudicate conflicts between states.
While the definition mentioned above is undoubtedly correct and valid, it can do little to help you understand the very workings of international arbitration. In other words, even when you know that such an institution exists and functions, you may not be able to use its services unless you are aware of its specifics.
This article features the essentials and practicalities of international business dispute resolution. We hope it will help you understand if arbitration may someday suit your needs better than other instruments, or even be the only feasible solution.
Please note: international arbitration is a serious step. Its rulings must be honored, and the arbitrament is mandatory for all authorities that have ratified the New York Convention 1958.
That is why you should never take it lightly or consider international arbitration only as a grand opportunity to score your goals. Try to tell the difference between the justified urgency of litigation and the situations when it should be postponed or avoided.
If the present analysis of the nuts and bolts of international arbitration is not sufficient for your purposes, please get in touch with us for more information. You can write to our InternationalWealth email address and messengers to book fee-based professional services and a free private consultation.
International arbitration – know the essentials of international dispute resolution
Some basic facts:
- At least 90% of businesspeople resort to international arbitration in their disputable situations. 31% use it on a stand-alone basis, while 59% combine it with ADR (Alternative Dispute Resolution).
- The London Court of International Arbitration(LCIA), the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAK), the International Chamber of Commerce in Paris (ICC) + the French Committee of the International Chamber of Commerce (ICC France), and the Swiss Chamber’s Arbitration Institution (SCAI) are recognized globally as the top authorities in international commercial arbitration. They are often the first choice of solid businesses seeking an arbitrator.
- The parameters for selecting an arbitral seat include a) availability of local support from local courts and judiciary, b) neutrality, c) reputable experience.
- The UNCITRAL Arbitration Rules (designed by the United Nations Commission on International Trade Law) are the most widely used procedural framework for international arbitration.
International arbitration (IA) plus Alternative Dispute Resolution (ADRs)
Since 2020, the international arbitration field has been adapting to the new pandemic-driven realities and needs of the users. According to the research of the current client preferences and perceptions conducted by White & Case LPP, the IA+ADRs combination has become the most preferred method.
Available combo options:
- International arbitration + ADR.
- Cross Border litigation + ADR.
- International arbitration without ADR.
- ADR only.
- Cross Border Court without ADR.
ADR usually involves several interrelated procedures (adjudication, advice and counseling, mediation, assistance in negotiations). However, ADR does not include arbitration and litigation.
- ‘International commercial arbitration’ – chosen by 90% of respondents
- ‘International arbitration without ADR’- 31% of respondents
- ‘international arbitration + ADR’ – 59% of respondents (compared to previous polls that featured 49% in 2018 and 34% in 2015)
- ‘cross-border litigation + ADR’ 6% of respondents
- ‘ADR only’ – 2% of respondents
- ‘cross-border litigation’ – 2% of respondents.
The growing popularity of the ‘ADR only’ is entirely justified by the shorter wait time and lower costs. Besides, many prefer this option because their contracts contain multi-tiered escalation clauses. Or they may just wish to try some alternative way of dispute resolution.
The most popular destinations for international arbitration
When preparing to protect your interests, you will try hard to avoid too costly and time-consuming procedures. The old maxim of ‘the more, the better’ would not help this intention. On the one hand, an international commercial arbitration award is an attractive objective and a good reason for choosing this method of dispute resolution. However, you can often achieve the desired effect at substantially lower costs if you explore other opportunities.
Selection of the arbitration location (seat) can have serious consequences for arbitrage in the future.
Seat(s) of arbitration and place(s) of hearing may be quite different destinations.
The contracting parties usually agree in advance in writing on the choice of the seat, whereas the actual hearing may be held later elsewhere. Wherever it is staged, the law, the arbitration, the order, and the award will refer to that seat.
The global top ten arbitral seats:
- # 1 and # 2 (54%): London, Singapore
- # 3 (50%): Hong Kong
- # 4 (35%): Paris
- # 5 (13%): Geneva
- # 6 and # 7 (12%): New York, Beijing
- # 8 (8%): Shanghai
- # 9 (6%): Stockholm
- # 10 (5%): Dubai.
The survey also featured about 90 other cities, including such rather popular seats for arbitration as Zurich, Vienna, Washington DC, Miami, Shenzhen, São Paolo, Frankfurt, and The Hague.
Among other reasons, their selection is related to the location of domicile/business activities of the respondents:
|Africa||Asia Pacific||Caribbean, LATAM||Europe||Middle East||North America|
What’s behind these findings?
- Beijing (like the entire Chinese economy) actively striving for regional and global leadership has not yet earned the unquestioned authority as an arbitration seat. Only a small portion of Asia Pacific respondents prefer to settle their commercial disputes in Beijing.
- Geneva is in demand, but it is preferred mainly by European and African respondents and did not feature much in the top picks for other regions.
- Hong Kong is actively increasing its influence. It is self-evident in the Asia-Pacific region. Its integration with mainland China will define if it can become one of the undisputed world leaders.
- London is the top choice for respondents from nearly all over the world. International arbitration in the UK is a hallmark of quality and authority. Singapore is yet another most popular seat – due to its ongoing economic growth and expansion, prompted by the great Lee Kuan Yew.
- São Paolo and New York can rival only Beijing. There is little sense in choosing them for commercial disputes resolution unless some specific reasons outweigh their weaknesses. Be sure to discuss them with our experts.
Essential things to keep in mind when choosing the seat of international arbitration
International arbitration is not suitable for resolving complicated commercial conflicts, and its procedures are different from conventional court proceedings. When your problem is too complex, you need to refer to police, other law enforcement bodies and solve the legal issue by the traditional lawsuit. Especially if you mean to retain the right to appeal a decision. Please mind the differences between arbitration and litigation when choosing means and ways to protect your business.
There are quite a few considerations that will define your choice, and not all of them are equally important. For example, the distance of the seat from your location, availability of direct flights, the language and other services, the overall travel costs– are essential yet not always critically important for your decision. The reputation and authority of a particular international arbitration tribunal will more likely influence your preference.
Aspects to consider when selecting the seat of arbitration:
- (56%) local support from local courts and judiciary
- (54%) neutrality on all issues, with no chance for public opinion or the prevailing political climate to impact the international arbitration outcomes
- (47%) the binding nature and enforceability of the international arbitration award: over 160 countries have ratified the relevant UN Convention, and the losing party has to enforce the award, however inconvenient it may be
- (39%) other or additional dispute resolution opportunities (emergency arbitrators, special provisional measures, etc.)
- (28%) the possibility of remote hearings, ideally with the local court’s facilitation
- (25%) uncompromised political stability in the particular jurisdiction: unless this condition is guaranteed, international arbitration tribunals may fall under the pressure of the national authorities or foreign influence
- (14%) the possibility to sign an award electronically besides the written Consent Award
- (8%) third-party funding (non-recourse) allowed in the jurisdiction.
Rules and procedures in international arbitration
UNCITRAL Arbitration Rules are a carefully designed and widely used procedural standard. Many people familiar with its general concept yet ignorant about its details believe it is the only code of international arbitration rules and procedures. However, other protocols are also quite common, while UNCITRAL remains the primary and most universal instrument.
The popularity of ad hoc arbitration procedural rules:
- (76%) UNCITRAL
- (28%) national
- (26%) bespoke regimes agreed by the parties
- (13%) London Maritime Arbitrators Association Terms
- (8%) other (usually very narrowly focused and randomly used)
- (5%) the Construction Industry Model Arbitration Rules
- (4%) CPR Non-Administered Arbitration Rules
- (4%) Grain and Feed Trade Association Arbitration Rules.
Arbitral institutions for international dispute resolution
The complete list of all institutions acting de facto and/or de jure as international arbitrators includes over 50 organizations. This variety is a convenient benefit for any user: they can choose the most appropriate one. However, there is always the risk of making the wrong choice.
The popularity of the most preferred international commercial arbitration institutions (with an indication of the venue):
- (57%) ICC – La Cour internationale d’arbitrage de la Chambre de commerce international (Paris)
- (49%) SIAC – Singapore international arbitration centre (Singapore)
- (44%) HKIAK – Hong Kong International Arbitration Centre (Hong Kong)
- (39%) LCIA – London Court of International Arbitration (London)
- (17%) CIETAC – China International Economic and Trade Arbitration Commission (Shenzhen)
- (11%) ICSID – International Centre for Settlement of Investment Disputes (Washington).
- (7%) SCC – The Stockholm Chamber of Commerce (Stockholm)
- (6%) ICDR – International Centre for Dispute Resolution (under American Arbitration Association, based in New York, Mexico, Singapore, Bahrain)
- (5%) PCA – Permanent Court of Arbitration (The Hague), the most famous international arbitration court – founded in 1899
- (5%) LMAA – London Maritime Arbitrators Association (London).
What particular structure should you choose to protect your interests? There cannot be any single correct answer. International commercial arbitration is an art on its own. Therefore, if you need some straightforward recommendations specific to your circumstances, don’t hesitate to contact our experts. We hope that the table below will help you with your choice.
The most preferred arbitration seats and institutions in the regions from which their clients come:
|Africa||Asia Pacific||Caribbean, LATAM||Europe||Middle East||North America|
Which strengths are shared by the most popular arbitration institutions?
The users’ priorities and likes differ. However, some strengths of the most popular institutions can be clustered as follows:
- (38%) administrative/logistical support for virtual hearings
- (32%) commitment to a more diverse pool of arbitrators
- (29%) transparency of administrative processes and decisions, such as selection of and challenges to arbitrators
- (25%) provision of expedited procedures
- (24%) more tailored procedures for complex and multi-party arbitrations
- (23%) provision for arbitrators to order both virtual and in-person hearings
- (21%) cost sanctions for delay by arbitrators
- (21%) rules giving extensive case management powers to arbitrators, including robust sanctions in relation to the behavior of parties and counsel
- (20%) provision of secure electronic filing and document-sharing platforms
- (18%) provision for summary determination/dismissal of unmeritorious claims
- (13%) provision of emergency arbitrator facility
- (6%) other strengths not mentioned above.
Time and cost of international dispute resolution
The most sensitive aspect of international arbitration is its cost in terms of time and money. The procedures are long and expensive. One could also say they are very costly.
Is it possible to hope for cheaper and faster solutions? No, as long as you deal with ICC, SIAC, HKIAC, LCIA, or CIETAC. Their services are expensive. Many users think that some fees and procedures are excessive and could be made optional for the sake of computing more reasonable costs.
What procedural options clients would like to exclude, make cheaper or faster:
- 61% – unlimited length of written submissions
- 38% – oral hearings on procedural issues
- 27% – document production
- 25% – in-person hearings
- 24% – more than one round of written submissions
- 22% – bifurcation
- 21% – post-hearing briefs
- 16% – early case management conferences
- 15% – cross-examination
- 13% – party-appointed experts
- 2% – other
How much is international arbitration?
The overall cost of international arbitration depends on the chosen institution, the nature of claims, the number of arbitrators, the lawyers’ rates and hours. To give you a general idea, here are some computations based on quotations provided by the LCIA (in GBP)
- Amount in Dispute [AiD]: 3 mln, 5 mln GBP.
- Number of Arbitrators [NoA]: 1, 3.
- Hours of Legal Work Required [HLWR]: 2,000 and 5,000 hours
- Lawyers’ Average Hourly Rates [LAHR]: 50 GBP and 100 GBP.
General budgeting estimations:
- AiD [3, 5] + NoA [1, 3] + HLWR 2000 + LAHR 50: 192,887 GBP.
- AiD [3, 5] + NoA [1, 3] + HLWR 2000 + LAHR 100: 346,274 GBP.
- AiD [3, 5] + NoA 1 [1, 3] + HLWR 5000 + LAHR 50: 422,968 GBP.
- AiD [3, 5] + NoA 1 [1, 3] + HLWR 5000 + LAHR 100: 806,435 GBP.
- Overall costs – 192,887 GBP.
- Registration fee – 1,950 GBP.
- Average administrative fee – 15,000 GBP.
- Arbitration tribunal charges – 62,000 GBP.
- Average fees and dues – 79,000 GBP.
- Estimated arbitration review fee – 100,000 GBP.
- Costs of obtaining expert evidence – 33,000 GBP.
Which conclusions can we draw from this exercise? The overall costs of arbitration make the international arbitration award expensive for the claimant, even when the total amount in dispute is relatively small (3 million GBP in the above-given case). Is it worth the trouble? It depends on the situation and your judgment.
Any major company, even when it operates by all the written and unwritten rules, has to face and deal with occasional commercial disputes. They can be resolved in different ways. International arbitration is a reasonable, civilized, and reliable method, but you should choose it thoughtfully, with full awareness of the costs, the timelines, the specifics of the seat and the institution, the award enforceability, other aspects.
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