So why arbitrate? Part 2
Far too often, arbitration agreements comprised in construction contracts are ill-considered, boiler plate provisions that are not afforded a well deserved priority
Click here to read part 1 of this article
Enforceability
The pillar of arbitration is perhaps the manner in which awards may be enforced. The New York Convention of 1958 for which most states involved in international transactions are signatory to, provides for arbitral awards to be enforced in other Contracting States.
This is important where assets may be held in locations other than the place the dispute arises or where it is resolved. In contrast, whilst national court decisions can easily be enforced in that particular judiciary’s territory it is not as fast or as easy to enforce in different jurisdictions.
Whilst the involvement of national courts of the jurisdiction in which an enforcement is sought, may be necessary to enforce an award, (in the case of an unwilling loser to face up to reality), national authorities generally recognise and comply with the NYC 1958 and render the appropriate assistance, even in extreme circumstances such as were seen in enforcement efforts in the arbitration between the Eurotrain Consortium and the Taiwan High Speed Rail Corporation (THSRC).
In that case an enterprising lawyer arranged for the legal seizing of a ship, owned by an investor in THSRC as persuasion to THSRC discharge an arbitration award, all made possible by the pillar of the NYC 1958.
The Hague Convention on Choice of Court Agreement, applicable to litigation aspires to be the NYC’s parallel, however until that Hague Convention comes into force, transnational companies do not really have an equal alternative with the compulsion of arbitration.
Final and binding
With very limited exception in the international community, arbitral awards are final and binding on the parties in dispute. The degree and extent of exception to this rule varies from jurisdiction to jurisdiction, in particular those States that have adopted UNCITRAL Model Law provisions provide little or no course of appeal of an arbitral decision.
The extent of the exceptions are outside the scope of this article but include such matters as where arbitrators have exceeded jurisdictional authority or breached rules of natural justice.
Confidentiality of proceedings
Many jurisdictions of the world provide that recourse to jurisprudence is a matter open to the public, bar in circumstances where a court may decide that some matters need to be kept out of the public eye, for example where respecting a parties’ rights to privacy.
In contrast, arbitrations are held in private and this is advantageous to parties, eager to protect the well being of its brand name, or reputation or even its intellectual property rights.
This is not to say that arbitrations are totally confidential, whilst the arbitration itself is private and its participants subject to confidentiality obligations, decisions often come into the public arena through security disclosures, challenges in courts and the press.
Perceptions of confidentiality are evolving in most jurisdictions, the point is, with careful drafting arbitration agreements can be made to be, totally confidential. Such confidentiality is not automatically available to litigants.
Selection of arbitrators – expert decision v judicial decision
In recourse to national courts, the ability to have some say in the expertise or capability of a judge presiding over a dispute is lost, national authorities decide who will preside over a particular case.
This is in contrast to a significant advantage of arbitration, whereby the parties have autonomy over who will comprise an arbitral tribunal.
The number of arbitrators may be decided upon in an arbitration agreement and / or appointed by a set of institutional arbitration rules, whatever way one or more arbitrators are appointed, the parties can exercise judgements of choice as to (and raise objection to), for example, the arbitrators background of expertise, knowledge of local law, language and custom or established reputation in the arbitration community.
Arbitrators, expert or specialist in the area or location of the dispute will likely decide a dispute faster and hence in theory anyway, more economically than may otherwise be the case in a national court.
Cost
Costs of arbitration can be viewed as an advantage or disadvantage dependant on jurisdiction. In the Indonesian jurisdiction costs of arbitration are significantly lower than recourse to the national court.
In the wider international context it is generally accepted that in the “national court v arbitration” economic debate, better value for money determinations can ensue in very large, complex arbitrations, (than recourse to national court litigation) however in smaller arbitrations cost may be similar to trans-national litigation.
Legal expenses can and do form a significant part of eventual arbitral awards and whilst expert lawyers are perhaps indispensable in complex legal argument based arbitrations, many arbitrations are capable of being adequately presented or argued by relevant experts in the field. Not all arbitrations are found to be fit for counsel.
In Black’s Law Dictionary, it defines ‘Arbitration’ as “intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation.” Perhaps this intent will be realised as the specialist arbitration expert community expands.
Conclusion
The advantages of arbitration make it a preferred choice for the settlement of disputes arising from international transactions that are not capable of being settled amicably.
The fears and risks of doing business in a hostile or unknown environment, where laws, customs and language are unfamiliar or where legal certainty is questionable, can effectively be denuded by embracing arbitration as a means of settling disputes, particularly where used in conjunction with other alternative dispute resolution solutions such as genuine attempts to mediate prior to referral to arbitration.
The advantages of arbitration over litigation clearly lead larger corporations to have some form of dispute strategy in place.
Disputes are avoidable and / or capable of settlement by amicable means, however the possibility of disputes not being avoided or not capable of amicable settlement are an inevitable consideration of any transaction, international or otherwise.
The existence of a mature arbitral system, such as exists today, whether by virtue of national laws or substantive adoption of UNCITRAL law both in combination with the degree of enforcement afforded by the NYC 1958, presents the argument that the settlement of international disputes can only be successfully resolved by recourse to arbitration, as there is simply no other acceptable alternative to astute transnational corporations.
As professional advisors to the property market, we not only have a duty to be aware of and advise upon dispute resolution techniques, but also when tasked to draft an arbitration agreement, to get it right.
Michael Fesler FRICS is contract advisor at PT Thiess Contractors Indonesia
Further information
www.rics.org/drs
