Bar News - February 23, 2007
Business Law: An International Dispute Resolution Primer
By: Stephen D. Mau
With the globalization of commerce, international trade has become commonplace. Trade misunderstandings and/or disputes can and do arise with increasing frequency. The commonly perceived method of resolving such disagreements is inter-party negotiation, failing which litigation would follow. With the increasing costs of litigation—not only in financial terms but in lost time of key personnel as well—alternatives to this traditional method of dispute resolution are being sought more often.
Alternative Dispute Resolution Options
Many types of ADR exist. Some exist in a “pure” form while others are a variation of an existing form or an agglomeration of methodologies created to suit the needs and requirements of the disputing parties. Below are some ADR definitions commonly used for international commercial disputes.
Adjudication/Independent expert determination
This method has been defined by Butterworth’s Australian Legal Dictionary (1997, Sydney) as:
“A process by which disputing parties may refer a matter to a third person, an expert in the area, for expert opinion, appraisal or valuation to settle the dispute. An expert appraisal is usually an assessment of value or loss in monetary terms ... The procedures and enforcement of expert appraisal are determined solely by the agreement between the parties. An appraisal tends to be an inquisitorial or investigative inquiry, while an arbitration tends to be judicial and adversarial in nature ... An expert generally decides a matter on the basis of the expert’s own specialist knowledge, skill and experience, with no obligation to hear the parties unless the agreement appointing the expert so provides. An expert is obliged to act impartially and carefully....”
Note that an independent expert is generally not obligated to accept evidence presented by the parties and is under a duty to generate his/her own evidence.
This term has been defined by The Language of ADR: A Glossary (1992, Academy of Experts, London) [with emphasis added] as:
“A without prejudice non-binding dispute resolution process in which an independent third party (“neutral”) assists the parties to settle their differences but may, if necessary, deliver his opinion as to the merits of the dispute.”
A successfully conciliated dispute is concluded on the making of a written settlement agreement where the disputing parties may adopt recommendations made by the conciliator. With conciliation, the neutral third party may play a more active role than in mediation.
This term has been defined, also by The Language of ADR [with emphasis added], as:
“A without prejudice non-binding dispute resolution process in which an independent third party (“neutral”) assists the parties to settle their differences but does not advise them of his own opinionn as to the issues and merits of the dispute.”
Both conciliation and mediation are neutral-assisted, “without prejudice” negotiations which preserve the parties’ legal rights to “escalate” the dispute to arbitration or litigation. A conciliator or mediator does not make “decisions” as such, so that there is no decision or award which would be binding upon the parties. Any agreements to which the parties arrive as a result of either of these processes generally can be enforced only on a breach-of-contract basis in a court action.
This term has been defined by Robert Morgan, The Arbitration Ordinance of Hong Kong: A Commentary, 1 (1997) as:
“the private judicial resolution by an arbitrator of a civil dispute or difference…by agreement of the parties. The arbitrator is a neutral and independent person, other than a judge in a court of competent jurisdiction, who is selected by or on their behalf the parties on the basis of his expertise, reputation and experience in the legal, professional or economic specialty from which the dispute stems. The normal outcome of the process is an award which is final, legally binding and ultimately enforceable in court in the same manner as a judgment.”
Arbitration is intended to be: private (proceedings are closed to the public); consensual (the arbitral process is to a certain extent party-driven); judicial (an arbitration results in an enforceable award issued by a tribunal serving as “private judges”); final and legally binding (the arbitral award generally cannot be appealed and is enforceable as a court decision, and under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, a foreign arbitral award is more easily enforced than a foreign court decision).
Basic Features of Arbitration
There are several objectives of having a final resolution of a dispute through an arbitral proceeding. One perceived advantage of arbitration is the privacy afforded the parties in the dispute. The arbitration is open only to the parties, their representatives, the tribunal and perhaps the administering institution if there is one. Another incentive is limited court interference; local courts in the place of arbitration serve only to support or assist in order to ensure the arbitration proceedings are progressed. Yet another advantage is the perceived speed and lower costs involved in the arbitration resulting from flexibility of the process as compared to traditional litigation in the United States.
Perhaps the greatest attraction of arbitration is due to this flexibility or party autonomy. Being consensual, arbitration allows the disputing parties the freedom to select and agree to options regarding the arbitration process. For example, the disputants may, among other things, stipulate the following:
- Tribunal. Parties may opt for a single or multi-member arbitral tribunal to conduct the proceedings and ultimately decide the dispute; specify the professional qualifications or expertise of the tribunal member(s) (e.g., commercial men or women, architect, engineer, lawyer, gemologist, etc.); specify the nationality of the tribunal member(s) (an important factor in a multinational, multicultural dispute where the parties are from different legal systems, i.e., civil law and common law legal systems);
- Venue or “seat” where the proceedings will be held. A potentially a critical factor where multinational and/or multicultural parties are involved, a perceived neutral location may be in order to avoid claims of geographical advantage, bias or prejudice; also important in terms of the applicable procedural law, enforcement of an award and an arbitration “friendly” jurisdiction);
- Type of arbitral proceeding. For example, traditional court-style litigation; short-form (where narrative statements of the case are presented, discovery is limited; oral argument and examination of witnesses both are limited); “look-sniff” procedures in commodity arbitrations (where evidence and legal submissions are of little practical use) and documents-only cases (where a decision is reached without a hearing);
- Administration. Administered arbitral process under institutional arbitration rules and procedures (e.g., rules of a particular arbitration center such as the Swiss Rules of International Arbitration; the procedural rules of the Hong Kong International Arbitration Centre or of the Singapore International Arbitration Centre); or, alternatively, the parties may dispense with administration of the process by an arbitration institution and/or their rules of procedure and proceed upon an ad hoc basis (where, in this circumstance, there is the option of proceeding without procedural rules or relying upon, e.g., the United Nations Commission on International Trade Law [UNCITRAL] Arbitration Rules);
- Method of evidence gathering by the tribunal. For example, adversarial process (with which common-law legal system lawyers are most familiar) versus inquisitorial process (with which civil-law legal system lawyers are most familiar). The choice may impact the appointment of expert witnesses, the examination of witnesses, the type and the extent of discovery, the role of the tribunal, etc.;
- Language of the proceeding.
Commencing Arbitration Proceedings
Where the disputing parties have agreed to a particular set of procedural rules, these rules will usually provide the framework to initiate and conduct the arbitral proceedings and to conclude the proceedings with the issuance of an award. Where the disputants have not designated or agreed to a set of rules, such as in an ad hoc proceeding, the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) may assist in those jurisdictions where this law has been adopted.
The Model Law is intended to provide the legal framework within a jurisdiction to permit the progress of the arbitral process. The Model Law provisions are intended to allow the constitution of the tribunal in the event of a recalcitrant party resisting arbitration. Once the tribunal is properly constituted, the arbitrator(s) are vested with the authority to conduct the arbitration. The Model Law also contains provisions delineating permissible court intervention in arbitration; generally, courts are only permitted to intervene in order to assist the arbitral process and its progress. Finally, the Model Law provides for the recognition and enforcement of all international commercial arbitration awards.
Enforcement of Foreign Awards
As its name implies, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“Convention”) pertains to the enforcement of an award in a convention state other than the state in which the award is made. The Convention currently applies to the recognition and enforcement of international arbitration awards in more than 145 member states and territories. Article V of the Convention establishes the limited grounds on which the enforcement of a foreign award may be challenged in court. A party resisting enforcement must establish at least one of a number of exclusive grounds for setting aside an award under Article V, such as:
- lack of capacity by one party to enter into an arbitration agreement;
- invalidity of the arbitration agreement;
- lack of proper notice of the appointment of the tribunal or of the arbitration proceedings such that the party was unable to present its case;
- the tribunal’s award exceeds the tribunal’s jurisdiction by the determination of matters not falling within the submission to arbitration;
- improper constitution of the arbitral tribunal;
- the award has not yet become binding upon the parties;
- the subject matter of the dispute is not capable of settlement by arbitration;
- contravention by the award of the public policy of the state where enforcement of the award is sought.
Under the Convention, the objectives of arbitral finality (i.e., a final decision without further challenges or appeals to the courts) and “fairness” are reinforced. A party resisting enforcement has very limited grounds on which to challenge the enforceability of an arbitral tribunal’s award.
In conclusion, if conducted properly, ADR, particularly international commercial arbitration, can be more efficient, less time consuming and commensurately less costly for the disputing parties. The Model Law, in jurisdictions where it applies, enables the commencement and progress of the arbitral proceedings through to the enforcement of an international commercial award. Likewise, the Convention affects the conclusion of an arbitration by stipulating the recognition and enforcement of a foreign arbitral award with only limited grounds for the refusal of enforcement.
Stephen D. Mau is a NH Bar member who is now in Hong Kong practicing in the area of alternative dispute resolution, particularly international arbitration. He is also a member of the American Arbitration Association. Contact him at Stephen@aculextransational.com
Author’s Note: The author gratefully acknowledges the assistance provided in the preparation of this article by Robert J. Morgan, barrister of England & Wales, Queensland, Australia.