Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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International Disputes: Courts or Arbitration?
Lawrence W. Newman and Michael Burrows
In negotiating contracts involving parties of different nationalities,
businessmen and their counsel frequently have the opportunity of deciding
whether or not to include a clause requiring disputes under the contract to
be arbitrated. Sometimes decisions are made regarding the mode of dispute
resolution without a full appreciation for the practical differences between
international arbitration and litigation. This chapter focuses on those
practical differences.
Arbitration is today a favored form of dispute resolution. The courts
invariably enforce arbitration clauses, and, as of January 1, 1988, about 70
nations are parties to the 1958 New York Convention on the Recognition
and Enforcement of Foreign Arbitral Awards. Arbitration is a widely
accepted form of dispute resolution for certain complex or technical
disputes such as, maritime, construction or insurance cases, which are often
heard by panels of industry members. In many types of international
commercial contracts, however, there is no industry practice of resolving
disputes through arbitration, and the parties have the option of including an
arbitration clause or not.
Arbitration is generally thought by the bar and the judiciary as being
speedier, more efficient and less costly than litigation in court. Arbitration
also has a reputation for occasionally producing bizarre results which
cannot be challenged in court. Litigation, on the other hand, is criticized as
involving too much costly discovery and motion practice. When the parties
involved in the business transaction are from different countries, each has a
fear—perhaps quite justifiable—in being exposed to the courts of the other
parties’ country. There is thus considerable appeal in having an alternative
tribunal, perhaps one located in a third country.
Wild Cards
When compared to litigation in the United States, arbitration forces the
participants in disputes to play with a deck containing more wild cards than
would be involved in court proceedings. There are more unknowns and
uncertainties as to the facts in arbitration and less opportunity to correct the
results of a misunderstanding of those facts by the arbitrators. To the
extent that arbitration does not involve extensive discovery, particularly of
third parties or through the use of depositions, the litigants know far less
about the facts of the case than they would in an American court. One consequence
of this lack of information is that, at least in the experience of the authors,
disputes involving arbitration are far less likely to be settled prior to a final
hearing on the merits than are cases in court. On the other hand, more
discovery may be afforded in arbitration than is obtainable in courts in
continental Europe, such as the Federal Republic of Germany.
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
