International Commercial Arbitration: The Future of Dispute Resolution for Businesses

International Commercial Arbitration: The Future of Dispute Resolution for Businesses

Ronald Allen Yu, MJIL Note & Comment Editor

Interest in arbitration has grown considerably over the years.  Of particular interest is arbitration’s growth as a dispute resolution forum in the field of international commerce.  Many businesses use arbitration due to its perceived efficient, faster, and cost-effective processes when compared to litigation in a courtroom.  Businesses normally agree to arbitration preemptively in an arbitration clause located in the underlying agreement at the start of the business deal.

Many criticize arbitration due to its many differences with domestic court litigation, the former painted as unfair and inadequate for resolving disputes.  While arguments can be made in favor of either international commercial arbitration or courtroom litigation, arbitration may not be as bad of a forum as critics think for resolving international commercial disputes.

Critics of arbitration point to its many flaws, both perceived and real.  One main argument against arbitration is the repeat player effect, whereby the one that chooses the arbitral institution (in many cases, a large business) usually wins over another party (usually an individual) because the arbitral institution does not want to lose the large business as a client.  However, this threat is diminished in international commerce, especially between large businesses that can negotiate and select an arbitral institution and the individual arbitrators on a tribunal.  Even if the repeat player effect is real, it is not apparent in these arbitrations since both parties will be on equal footing and the arbitral institution (along with the individual arbitrators) will likely want to maintain good relations with both parties to ensure their business in the future.

Many also criticize arbitration as difficult for parties, because it is relatively unique compared to courtroom litigation.  Some might say that it is harder to find an attorney who is familiar with arbitration, and thus it might be more expensive.  However, it must be remembered that international commercial arbitration concerns disputes between businesses, many of which are well-funded and can find an attorney to arbitrate for their cause.  Furthermore, there are many attorneys around the world who are familiar with arbitration, likely due to the rise in prominence of international commercial arbitration.

It must be noted that there are many instances in which arbitration is actually fairer to the parties than litigation in domestic courts.  For instance, the domestic courts of Venezuela are generally under de facto control by the Venezuelan president, and consequently are corrupt, anti-West, and anti-foreign investor.  In other words, if you are investing in Venezuela, and you are not an ally of the Venezuelan president, then litigation in Venezuelan courts is heavily tilted against you.  Thus, to promote fairness in dispute resolution between parties, it is best to include in the initial business agreement an arbitration clause that binds both parties to international commercial arbitration, conducted by an arbitral institution with an excellent reputation.

All the criticism of arbitration is at least not as valid when it comes to international commercial arbitration, and especially when the parties are businesses that have willingly submitted to arbitration.  In fact, arbitration can provide the fairest process under certain circumstances.  But the strongest arguments in favor of allowing parties to submit to international commercial arbitration are simply that both parties should have the authority to choose how to settle disputes, and both parties should be bound to do what they agreed to do.