Breach of contract cases and other business disputes become significantly more complicated when international borders are involved. International arbitration provides a neutral forum for business partners to resolve these disputes with greater predictability and efficiency.

To reap the full benefits of international arbitration, parties should determine at the outset how they will resolve disagreements arising from their transactions. We frequently encounter businesses that are shocked to learn that their legal rights and remedies may be determined by an unfamiliar legal system thousands of miles away. Thankfully, there are steps your company can take at the contract negotiation stage to establish certainty and protect your legal rights.

As cross-border transactions have become more prevalent, reliance on international arbitration has also grown, particularly when resolving complex, transnational commercial disputes. Some of the advantages of international arbitration over traditional court proceedings include:

  • Neutrality: Arbitration provides a neutral forum and eliminates the risk of resolving your dispute in a foreign legal court that may favor its citizens.
  • Expertise: International arbitrators are generally more knowledgeable about international business practices and legal norms.
  • Flexibility: Arbitration gives the parties greater flexibility and control over the dispute resolution process. For instance, arbitration rules can be established by the parties so that they reflect the relationship of the parties, the industry in which they operate, and/or the nature of their disputes.
  • Confidentiality: In contrast to public court proceedings, arbitration is typically a confidential process, which ensures the parties' proprietary information is shielded from public view. The parties may also specify the degree of confidentiality required in their arbitration agreement
  • Predictability: Through arbitration provisions, parties can decide the forum in which their dispute will be resolved and the procedures that will govern those proceedings. Arbitration agreements also generally allow the parties to play a role in the selection of the arbitrators.
  • Finality: Arbitration decisions are generally final and not subject to a protracted and potentially costly appellate process.
  • Enforceability: U.S. court judgments may not be recognized overseas. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, better known as the New York Convention, governs international arbitration awards for more than 160 signatory countries. It requires that the courts of member nations recognize and enforce foreign arbitral awards and arbitration agreements.

In the commercial context, the bulk of all international arbitrations involve breach of contract disputes. Therefore, when negotiating international agreements, U.S. companies should carefully consider arbitration clauses.

Some of the most important provisions of any arbitration agreement include the forum for arbitration, procedural rules, and governing law. The seat of the arbitration determines the legal location of the arbitration and the procedural law that will apply. This designation is important because selecting an arbitration-friendly jurisdiction, particularly one subject to the New York Convention, generally makes it easier to conduct the arbitration with minimal court involvement and enforce the resulting arbitration award.

A choice of law clause or governing law provision allows the parties to designate which state or country's laws will apply to the interpretation of the arbitration agreement. Because the law governing the arbitration agreement does not have to be the same as the law governing the underlying substantive contract, including a provision expressly designating the governing law of an arbitration clause can help avoid costly disputes.

Parties may specify specific procedural rules or defer to the rules of a pre-designated arbitration tribunal. There are many different international arbitration forums. Some of the most well-known include the International Court of Arbitration of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the International Centre for Dispute Resolution (ICDR). While the rules of the forums are similar, it is important to determine which is best suited to resolve the parties' disputes. There are also arbitral institutions that deal exclusively with certain areas of law, such as the World Intellectual Property Organisation (WIPO) Arbitration and Mediation Center.

At Scarinci Hollenbeck, we advise businesses of all sizes regarding their international operations. Our attorneys work closely with clients to develop strategies that allow them to capitalize on opportunities and minimize the risks that often arise when conducting business overseas, which includes the negotiation of international arbitration agreements. When disputes arise, our experienced arbitration attorneys are prepared to protect our clients' interests whenever and wherever we are needed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.