Arbitration as a means of resolving commercial cross-border disputes is a go-to for any serious-minded company or person. Arbitration indeed offers several significant benefits for resolving commercial cross-border disputes, making it an attractive choice for businesses involved in international transactions. Arbitration is also important in cross-border disputes due to challenges with the issue of different jurisdictions and international laws which may make the resolution process more complicated.

The common types of commercial cross-border disputes among others are commercial negligence, share purchase disputes, intellectual property disputes, technology and data protection as well as manufacturing issues.

Benefits of Arbitration in Cross-border Disputes

Equality

Arbitration offers procedural equality. Most arbitral regimes expressly provide that arbitrators are under the obligation to treat the parties fairly and equally. Parties are also awarded the same time to argue their case, sometimes to the minute. This may seem, and indeed is, quite formal, but it prevents parties from even attempting to argue that they were not on an absolute equal footing in the procedure. A consequence of the emphasis put on procedural equality is that national practices that do not comport perfectly with procedural equality are banned.

Predictability

When parties agree to arbitrate a cross-border dispute, they have the opportunity to create predictability in how the dispute will be resolved. The venue of the arbitration and the rules governing the arbitration will be agreed upon prior to the dispute arising. Parties in arbitration have the opportunity to establish clear rules and procedures for dispute resolution, reducing uncertainty associated/or connected with foreign judicial systems.

Enforceability

Enforcing an arbitral award internationally is easier, thanks to conventions like the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards[i]. The New York Convention provides for the recognition and enforcement of foreign arbitral awards in 168 countries. International enforcement of a court judgment, however, is much more difficult[ii].

For a court judgment to be enforced internationally, there must be a mutual recognition agreement between the jurisdiction in which the decision was made and the jurisdiction in which enforcement is sought. Enforcing foreign court judgments can be costly, time-consuming, and challenging.

Right to choose an arbitrator

Arbitration allows parties to select arbitrators with expertise relevant to their dispute, ensuring that persons with knowledge of the commercial dispute are appointed. This removes a lot of the variability seen when presenting cases before judges and juries who may not be well-versed in the subject matter of the dispute. For instance, some disputes might be well suited to resolution by a legal expert, while others might be highly technical or require expert evidence concerning questions best left to engineers, quantity surveyors, or builders. On the other hand, in a court case, the parties have little control over who will be the judge appointed to determine their dispute in court.

Confidentiality

Most jurisdictions acknowledge that arbitration proceedings and decisions are confidential. Court proceedings, on the other hand, are usually public. This means that there is less publicity over an arbitration dispute and its outcome and less risk of disclosing commercially sensitive information.

Neutrality

International arbitrations offer neutrality in terms of the arbitrator’s nationality and the venue.  The arbitrator or arbitrators’ identity and venue can be neutral from the parties’ location. In international litigation, the judge is likely to have the same nationality as one of the parties, whereas in international arbitration, sole arbitrators will almost invariably be from a different nation to the parties.

Flexibility

The parties are free to choose where the arbitration takes place and what law and institutional rules will govern the arbitration and procedure. Arbitration also offers greater procedural flexibility than litigation. Parties may agree on time limits, confidentiality, location of oral hearings, the language of documents and hearings, and even whether the tribunal will make a decision according to law or justice and fairness. For example, the parties may agree to conduct the arbitration with a limited time for the presentation of oral evidence, or even with no oral evidence at all.

Faster resolution

Arbitration proceedings can expedite the resolution process, subject to the availability of parties and arbitrators. Expedited arbitral rules can further streamline proceedings, leading to quicker outcomes.

Finality

When a court delivers judgment, the losing party has the right to appeal to the higher court. However, an arbitral award is final and subject to appeal on only very limited grounds on procedure and public policy[iii]. Under Model Law, an arbitral award must be challenged within three months[iv].

Conclusion

It can be seen from the above-listed benefits, that it is logical for parties to choose international commercial arbitration to resolve cross-border disputes. Arbitration is highly recommended in cases where there is an enforceable arbitration agreement that applies to the relevant dispute, the counterparty does not have substantial assets located in the same jurisdiction, and where there is a concern about enforcing a local court judgment against the counterparty, or where there is a risk of disclosing commercially sensitive information through the dispute resolution process. In a nutshell, Arbitration has advantages in terms of fairness, predictability, enforceability, expertise, confidentiality, neutrality, flexibility, and speed to make it a preferred option for many cross-border transactions.

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[i] (New York Convention), 1958

[ii] https://www.tblaw.com/wp-content/uploads/2017/03/mlus-journal-note-23-ariz-j-intl-comp-l-747-466748_4-1.pdf, accessed 17/9/2023

[iii] “Workbook: Introduction to International Arbitration”

[iv] Article 34.3 of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”),

Written by Olufe Popoola for The Trusted Advisors

Email us: info@cms.trustedadvisorslaw.com

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