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Best practice in international arbitration

This guide was last updated in May 2013.

International contracting can lead to a particular kind of dispute. Parties often get into difficulties because what one party considers normal practice can actually be very different in another jurisdiction. Often the only common consensus is that the parties want their dispute resolved as quickly as possible.

Unfortunately, the dispute resolution clauses which are almost always found at the end of a contract do not always get the time or attention that they deserve before the contract is signed. This is often explained away by parties not wanting to dwell on negative issues when they are at a positive stage in the project, but can lead to an unnecessarily slow and expensive dispute resolution process in the event that things go wrong.

International arbitration is usually the best method of resolving disputes on an international contract involving parties from different jurisdictions. It is the method of choice in certain industries such as infrastructure, energy, commodities and shipping

If you intend to include international arbitration as one of the options for dispute resolution, this guide suggests six steps to making sure the process works for you.

1. Consider all of the parties and whether you will be able to enforce an arbitration award

Consider who you are contracting with and other parties up and down the line. It is important to think about whether you would be able to recover monies if matters went wrong. Ask yourself:

  • is the owner/employer good for the money?
  • is the owner/employer a state entity? This could make bringing claims and enforcement very difficult, particularly if you want to continue working in that country;
  • what would you do if they did not pay you – where are their assets?
  • are the courts where assets are situated independent and efficient?
  • the New York Convention, which is one of the key instruments in international arbitration, is very effective when enforcing against multinational companies but may be much less effective in dealing with 'domestic' entities. There are some countries which are notorious for this.

2. Ask whether the arbitration agreement is valid under national laws and treaties

The arbitration agreement usually needs to be in writing, but note that under the revised United Nations Commission on International Trade Law (UNCITRAL) Model Law and UNCITRAL Arbitration Rules 2010 it can be oral. As this could be a risk, make sure the contract specifies the desired procedure.

Before agreeing on procedures:

  • check local law issues;
  • check on relevant corporate law – for example, in Turkey, special powers of attorney are required;
  • if dealing with a local government department - can the department actually submit to arbitration?

Best practice: Ensure you have a valid arbitration agreement when you contract.

3. Where is the seat of the arbitration?

The answer to this question is much more important than people often realise, because it determines:

  • procedural rules and rules of evidence;
  • privilege;
  • safety (of the people involved in and conducting the dispute);
  • legal infrastructure - choice of arbitrators, lawyers and suitable venues;
  • appeals process;
  • whether courts are likely to interfere with the process.

Best practice: choose a seat which is safe, independent, legally mature and which has effective court support.

4. Consider other contract dispute resolution structures

Depending on the nature of the dispute there will often be tiered dispute resolution procedures to follow, but standard timetables can make the overall process too slow. For example:

Engineer's decision

42 days

Dispute Resolution Board

84 days

Mediation

90 days

Appointment of arbitrators

90 days

Total

306 days

Best practice: reduce the number of tiers and/or reduce the time scales.

5. Consider which procedural rules and appointing bodies to use

Decide whether to have an administered arbitration, through a body such as ICC, LCIA, SIAC, CIETAC. This makes dealing with the administrative side of the arbitration easier, but can be expensive and slow.

Alternatively, you can have a non-administered arbitration, either using the UNCITRAL Rules or on a less formal ad hoc basis. This can be cheaper and faster if the parties are cooperative.

For more information about the differences between institutional and ad hoc arbitration, see our separate Out-Law Guide.

6. Think carefully about the law of the contract and the language of the arbitration

The substantive law of the contract is very important, and is often underestimated. This should be very carefully considered at the outset. Major differences in the application of the law can include the approach to:

  • good faith;
  • penalties;
  • interest;
  • notices.

It is also very important to select the language of arbitration at the outset otherwise this could result in arguments at the beginning of any dispute.

Conclusion

If you take note of this advice, you will be in a stronger position if you do find yourself in a dispute. This will allow you to conclude the dispute in the quickest way possible.

This guide is based on an article by Helen Waddell for JCT Newsletter.

Expertise in International Construction Arbitration

We are instructed by companies, governments and state agencies across all sectors on large, complex, international arbitrations for: joint venture and consortium arrangements, software and technology projects and contracts involving the supply of energy, licensing, commodities, manufacturing and international sales and distribution. We work regularly with local lawyers, consultants and experts in different languages and across different jurisdictions.

More about International Construction Arbitration