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BUSINESS ADVICE BEYOND DISPUTE How arbitration can help resolve commercial and international trade disputes. AUTHOR –Nick McQueen COMMERCIAL arrangements can break down even at the best of times. The risk of disputes arising typically increases at times of political and economic change and uncertainty, and where business is conducted across borders this can add a further layer of complexity. Arbitration defined Arbitration is an alternative to court litigation as a formal means of resolving disputes. The parties agree to submit the dispute in question to arbitration – there is usually an agreement or clause to this effect included in the contract itself for this purpose – and then an independent arbitrator or panel of arbitrators makes an award, acting in a judicial fashion, which is final and binding on the parties. Parties are free to choose in their agreement or clause the number of arbitrators; which rules will apply (for example, those of a particular arbitral institution); where the arbitration will take place (known as the ‘seat’); the governing law of the contract and the arbitration agreement or clause itself; and the language to be used in the proceedings. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards facilitates the enforcement of arbitral awards in most countries in the world. The seat of arbitration is a key consideration because this impacts on issues such as the extent to which arbitral awards can be challenged; the enforceability of awards; confidentiality; and how ‘friendly’, effective and interventionist the national courts will be in supervising and supporting the arbitration process. Prior planning It is essential to give careful thought to dispute resolution clauses from the outset. All too often, contracting parties are keen to push forward with their commercial arrangements and fail to plan effectively for how disputes will be managed if things go wrong. Careful drafting can lead to significant time and costs savings and make disputes easier to resolve in the long run. In fact, it is not unusual for dispute resolution clauses to be drafted at the last moment as an afterthought. It is important to take the time at the start, well in advance of any dispute becoming a reality, to weigh up the advantages and disadvantages of the different forms of dispute resolution, taking into account the parties’ particular circumstances and the likely nature of any dispute. An effective dispute resolution clause requires the parties to follow a preagreed route to resolution if and when a dispute arises. Careful thought at the drafting stage can prevent any potential secondary dispute about whether, how, and even where, the primary issue should be resolved; it can minimise the scope for any tactical game-playing (thereby helping to preserve commercial relationships); and it can ensure that the time and costs of dealing with formal litigation or arbitration are only incurred as a last resort. “London is a very well-established and sophisticated arbitration centre with worldclass facilities and a wealth of high-quality and experienced professionals.” Parties should consider whether tiered dispute resolution clauses may be suitable for the commercial relationship or transaction in question, i.e. clauses that mandate an escalating procedure designed to encourage an open and frank exchange to explore whether a commercial solution is possible and, if not, whether resolution can be achieved through mediation or another form of alternative dispute resolution (ADR), before proceeding to arbitration (or court litigation). The process to be followed does not have to be formal, but it must be sufficiently clear and certain, without requiring any further agreement between the parties. That means that all steps in the process, including machinery for the appointment of any mediator or other expert, must be comprehensively specified. This may include incorporating the procedures of an external ADR body. The clause should be precise and clearly drafted. If appropriate, it should comprehensively set out each party’s obligations during the intended ADR process and confirm their unequivocal commitment that the process must be exhausted before litigation or arbitration is pursued. The clause should also address matters such as clarification of the issues in dispute, confidentiality, any time limits and the consequences of any failures to comply with the clause. In complex contracts, it may be appropriate to apply different dispute resolution mechanisms to different aspects of the contract. If arbitration is chosen, and it is already clear what types of disputes are likely to arise, it may be possible for the parties to agree in the contract on a suitable procedure and timescale for the arbitration, including the use of fast-track rules where appropriate. Where the relevant law allows, parties may wish to consider excluding certain challenges to an arbitral award in the courts. While there is an implied duty of confidentiality in relation to arbitration in England and Wales, parties should consider agreeing express provisions to maximise protection. Once a dispute has arisen, good legal advice should be sought as soon as possible. So why arbitrate? In a 2021 survey, 2021 International Arbitration Survey: Adapting arbitration to a changing world, published by Queen Mary University of London, 90 percent of respondents chose arbitration as their preferred method of resolving crossborder disputes, either standalone or in conjunction with ADR. Parties often identified a number of valuable characteristics of arbitration such as enforceability of awards; avoiding specific legal systems/national courts; flexibility; ability of parties to select arbitrators; and confidentiality and privacy. Brave | Curious | Resilient / www.cicm.com / July & August 2023 / PAGE 12
“The fact that arbitration exists is a bonus, but for it to be relied upon as a solution requires early consideration of dispute resolution and the process being correctly inserted into agreements.” The inherent flexibility and adaptability of the arbitration process gives the parties the freedom to shape how their disputes will be resolved, and different arbitral institutions offer parties a wide range of innovative options to tailor the process to suit their needs, including faster and cheaper routes where appropriate. A new set of Digital Dispute Resolution Rules were published by the UK Jurisdiction Taskforce in 2021. They offered a bespoke, streamlined arbitration procedure aimed at facilitating the rapid and cost-effective resolution of commercial disputes, particularly those involving novel digital technologies such as crypto assets and smart contracts. 54 percent of respondents to the survey above selected London as one of their most preferred arbitration seats, together with Singapore, ahead of Hong Kong at 50 percent and Paris at 35 percent. London is a very well-established and sophisticated arbitration centre with world-class facilities and a wealth of highquality and experienced professionals. It is also home to the London Court of International Arbitration (LCIA), which is consistently named as one of the top choices of arbitral institution. In 2020 the LCIA received the highest number of new cases to date (444) and of those 92 percent (407) were administered - according to the LCIA Annual Casework Report 2020. Commercial parties are attracted to London for a variety of reasons, including the neutrality and impartiality of the legal system; confidence in English law developed through the common law; a supportive national arbitration law in the form of the English Arbitration Act 1996; and the renowned arbitrationfriendly approach of the national courts. This includes a proven track record of enforcing parties’ agreements to arbitrate and arbitral awards. Among other things, arbitrating parties can turn to the courts for injunctive relief for an order requiring a party to comply with an order of the arbitral tribunal and to compel witnesses to give evidence. Londonseated arbitration, and English governing law, are attractive options for contracting parties, regardless of where they are based or the place of performance of the contract. The impact of Brexit If Brexit is to have any impact at all on London-seated arbitration, it should only be to increase its attractiveness to commercial contracting parties. In relation to court litigation, there are some potential hurdles concerning recognition and enforcement of judgments post- Brexit. The European Commission recommended in 2021 that the EU should not consent to the UK’s application to join Brave | Curious | Resilient / www.cicm.com / July & August 2023 / PAGE 13 continues on page 14 >
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