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With the advent of globalization,the number of companiesengaged incross-border transactions,and therefore, cross-border disputes, hasgrown exponentially. To avoid the maelstromof litigating in a foreign country orindeed having satellite litigation overwhich countries' courts have jurisdiction,international companies now appreciatethat particular attention must be paid atthe outset of the transaction to the disputeresolution mechanism within theunderlying contract.
Statistics show that international commercialarbitration has emerged as thepreferred choice for resolving such disputes.
This article provides a practicalguide to international commercial arbitrationfrom the inception of the arbitrationto the enforcement of a final award.There are many factors to considerwhen deciding which dispute resolutionmechanism to adopt. However, internationalarbitration has two major advantagesover litigation in national courts.
First, international arbitral awards are farmore readily enforceable worldwide. Morethan 130 countries are signatories to theNew York Convention 1958, which facilitatesthe recognition and enforcement ofan arbitral award within each signatorycountry, notwithstanding that the awardwas rendered in a foreign jurisdiction.Court judgments, on the other hand, aresimply bare judgments which are unsupportedby a multilateral enforcement treaty. By way of example, the UnitedStates is not a party to any treaty providingfor the enforcement of its courts' judgmentsabroad.
The second major advantage of internationalarbitration is neutrality. Most corporationsdo not want to submit theirdisputes to a foreign court, and they certainlydo not want to submit their disputeto the courts of their counterparty andthereby give away "home advantage."International arbitration allows the partiesto refer their dispute to a neutralforum which is acceptable to both parties,even if they are from entirely distinct legaland cultural backgrounds.
COMMENCING THE ARBITRATION
The first step to any arbitration is usuallylaid down in the arbitration clause (orarbitration agreement) within the underlyingcontract itself. The arbitration agreementwill typically provide whether thearbitration will proceed ad hoc or beadministered by an arbitral institution,such as the American Arbitration Association(AAA), the International Chamber ofCommerce (ICC) or the London Court ofInternational Arbitration (LCIA). It will alsoprovide for the place (or "seat") of thearbitration as well as the language to beadopted in the proceedings. The legalplace or seat of the arbitration is highlysignificant because it will determine whichprocedural law will be applied to the arbitrationand therefore which country'scourts will "supervise" the arbitration.
The aggrieved party wishing to commencethe arbitration must first serve aRequest for Arbitration, which may alsobe referred to as a Notice of Arbitration ora Demand for Arbitration.
The Request for Arbitration is similarto a civil complaint and marks the time offiling for statute of limitation purposes,and marks the start of the arbitrationprocess. While applicable institutionalrules and national law might specify thenecessary components of the request, itwill usually contain a demand for arbitration,the names of the parties and theircontact information, a brief description ofthe relief sought through arbitration, acopy of the contract at issue (includingthe applicable arbitration agreement) andthe arbitrator selected by the commencingparty. The request may also set forthany previously agreed upon matters, suchas the substantive law that will govern thedispute and the number of arbitrators thatwill decide the dispute.
While the request need only providegeneral notice of the basis and grounds ofdispute, as with civil complaints, partiesmay wish to make requests more detailed.Significantly, the length and detail of arequest may depend upon the legal backgroundof the drafter, and it is not uncommonto see longer, more detailed requestsfrom civil law-trained attorneys.
Once a request has been served, therespondent must file a response whichanswers the allegations and asserts anycounterclaim. While the time to respondmay vary according to which institutionis administering the arbitration, a typicalresponse time is 30 days.
U.S. practitioners should note that failingto respond to a Request for Arbitrationwill not prevent the arbitration fromgoing forward and will not shield therespondent from a final award on the merits.
Most institutional rules and nationalarbitration laws permit an arbitration toproceed in the absence of a party whorefuses to participate. Moreover, a defaultaward is fully enforceable under the NewYork Convention. Consequently, respondentsare ill-advised to default and shouldask the tribunal or opposing counsel formore time to reply if they need it.
The next step is typically the constitutionof the arbitral tribunal. It is sometimessaid that an arbitration is won or lost withthe selection of the tribunal and a partywho appoints its arbitrator without duecare may well regret its haste at a laterdate.
Tribunals are comprised of either oneor three arbitrators. One arbitrator is considerablycheaper -- indeed, two-thirdscheaper -- and is often appropriate whenthe dispute is less complex and/or thereare lesser sums involved. Using one arbitratorcan also make the arbitration movemore quickly because there are fewerschedules to accommodate. On the otherhand, as the saying goes, three heads arebetter than one. As it is often difficult toanticipate the scope of the dispute thatmay arise, the parties may decide to leavethe number of arbitrators up to the arbitralinstitution if the parties cannot reachan agreement at the contractual negotiationstage. All of the institutional rules providefor a default method of selecting (andreplacing) the arbitrators.
When the arbitral tribunal consists ofthree members, parties often agree thateach side will have the right to nominateone arbitrator, and that the two party-appointedarbitrators will select the third,who will serve as the tribunal's chair orpresident. If the two party-appointed arbitratorscannot reach an agreement, thearbitral institution will select the chairman.Parties typically have greater confidencein the tribunal if they nominate oneof the arbitrators and have input in theselection of the chairman.
The arbitration agreement may requirethat the arbitrators have particular qualifications,language skills, nationalities orplaces of residence. It is particularly commonin disputes involving intellectualproperty or other technical issues torequire that an arbitrator have relevantexperience in a certain field.
DISCOVERY
Unlike in court proceedings, there istypically an exchange of underlying documentationbetween the parties at anearly stage of the arbitration process.Many institutional rules provide that theparties should annex to the Request forArbitration or the Response "the documentson which that party intends to rely."This typically includes witness statementsof fact (narratives setting out a witness'factual testimony).
However, once the tribunal has beenconstituted the procedural framework ofthe arbitration has been laid down (in theform of procedural awards) and theexchange of pleadings concluded, the partiescan make certain requests for documentationfrom their opponents. UnlikeU.S. litigation, discovery in internationalarbitration is typically much more limited.Accordingly, U.S. litigators accustomedto sweeping U.S.-style discovery mustadjust to a system that is more particularizedand more restricted.
Unlike U.S. litigation, documentexchange will usually be much more limited. Broad-based document requestsseeking "any and all documents that relateor refer to" will typically not be permittedand may only serve to unnecessarily irritatethe tribunal.
Depositions are the exception and notthe norm. U.S. litigators participating ininternational commercial arbitrationsmust understand that depositions are notthe typical means by which pre-hearingevidence will be obtained. In the typicalinternational arbitration, there will be nodepositions, and only a small number ifany are allowed at all.
It is more usual in international arbitrationfor witnesses to present their testimonyin the form of witness statements.The veracity of these statements is thentested through oral cross-examination ata hearing.
While the increasing influence of theAmerican legal system on internationalarbitration is driving the introduction ofdepositions into the process, that influencehas not permeated uniformly.
Accordingly, it will be more likely that depositionswill only be ordered where one orboth parties are American and where oneor more arbitrators are as well. The likelihoodof a tribunal comprised entirely ofnon-American parties ordering depositionsis therefore slim.
PRESENTATION OF EVIDENCE
The manner in which evidence will bepresented may be more flexible than courtproceedings and may be less formalistic(certainly in terms of, for example, "swearinga witness in"). Fundamentally, themethod by which evidence will be presentedwill be most influenced by the legalbackgrounds of the arbitral tribunal membersthemselves.
Parties to international arbitration maycome from very different legal traditions.For instance, a French party trained in thecivil law system might have very differentexpectations for the presentation of evidencethan an English party trained in acommon law system. Even parties trainedin similar systems may have divergentviews on how evidence should be presented.
For example, while the UnitedStates and India both hail from a commonlaw tradition, the different practices andrules that have developed within thosesystems may lead to drastically dissimilarexpectations for how evidence will be presented.The International Bar Association Ruleson the Taking of Evidence in InternationalArbitration (IBA Rules) attempt tobridge that gap. The IBA Rules are a hybridbetween civil and common law and drawon facets of each system to fashion amethodology for taking and presentingevidence that is "internationally" acceptable.
Those rules are founded on generalnotions of fairness and notice and avoidformalistic concepts such as hearsay infavor of broad concepts of relevance andmateriality. The IBA rules provide a frameworkfor document production and witnesstestimony but do not compel anysingle method. As such, the IBA rules offera flexible system for governing the admissionof evidence, and parties should givestrong consideration to incorporating them directly into their arbitration clauses.
Direct testimony will typically be givenin the form of witness statements uponwhich the witness may be cross-examined.That cross-examination will generally bemuch less aggressive than that to whichmany U.S. litigators are accustomed, andaggressive U.S.-style cross-examination isgenerally frowned upon. Employing such astyle in front of non-U.S. arbitrators will notonly fail to win points with the tribunal, itmay also hurt the client's cause.
The use of expert witnesses is very commonin international arbitration. Expert witnessesmay be called by either parties orboth, and may even be called by the tribunalitself. A typical use of an expert in internationalarbitration might be to provide anopinion on the valuation of a company orthe economic loss suffered by a companyfrom an alleged expropriation.
THE ARBITRAL AWARD
In arbitration, unlike litigation, any formof relief granted by the tribunal is commonlyreferred to as an award. Awards maygrant any form of relief, from preliminaryinjunctive relief (assuming such is permittedby the relevant arbitration rules andgoverning national procedural law) to afinal award deciding the dispute on themerits. Awards will also make provision forwho will bear the costs of the arbitration(typically the losing party).
In international arbitration, as in litigation,it may be necessary to act to preservethe rights of the parties until a final awardis granted. All of the major internationalarbitration rules permit arbitrators to grantinterim measures against the parties to thearbitration. However, several points needto be made about provisional relief. First,the governing national procedural law mayprevent tribunals from granting that power.Second, because tribunals only have powerto grant provisional relief but not enforceit, parties may still have to apply to courtsto practically effect that relief.
Third, where permitted, tribunals onlyhave power to grant provisional reliefagainst parties to the arbitration. Accordingly,if parties to the arbitration need provisionalrelief against a third party, theymust apply to national courts for that relief.Lastly, if parties need to obtain provisionalrelief before the tribunal is seated, theywill most likely, again, have to apply to acourt for that relief.
In addition to awards seeking provisionalrelief, tribunals will also issue interimawards. These interim awards will addressany matters that arise in advance of thefinal award and include issues such as proceduralmatters, discovery disputes andthe fees and costs of deciding interim applications.
While it is unlikely that interimawards in the United States may beappealed to courts, practitioners must beaware that certain jurisdictions permit partiesto appeal interim awards to nationalcourts and that such appeals can markedlydelay the arbitral proceedings.
Final awards are those issued on themerits and will generally be dispositive ofthe dispute. A key aspect of the final awardis that it be "binding" upon the parties sothat it is enforceable under the New YorkConvention and they can only be"appealed" to the supervising court onvery limited grounds (such as, for example,procedural unfairness or manifest errorof law). Under most institutional arbitrationrules, final awards must offer reasonedexplanations for their conclusions.
ENFORCING THE ARBITRAL AWARD
Under the New York Convention, a foreignarbitral award can be enforced uponpresentation in court of: (1) a copy of theaward in the language of the country ofenforcement; and (2) a copy of the arbitrationagreement in the language of thecountry of enforcement. While parties muststill follow the implementing provisions ofthe national law where recognition issought, if those basic conditions are satisfied,the award should be enforceable.
The New York Convention also containsgrounds for refusing to enforce awards.Generally, those grounds are: (1) that thearbitration agreement was invalid; (2) theparty opposing enforcement was not givenproper notice of the proceedings or wasnot permitted to present his case; (3) theaward is beyond the scope of the arbitrationagreement; (4) there was a lack of dueprocess; or (5) the award was set aside bya court of the country where the award wasmade. Additionally, in the United States,some courts have refused enforcement ongrounds that there was a manifest disregardof the law by the arbitrators. Whilethere is a trend building to reject thatground in the international commercialarbitration context, it has not yet firmlytaken root.
CONCLUSION
International commercial arbitration isnot without its drawbacks and therefore itscritics. However, there is no doubt that itsuse is very much on the rise. This is thanksin no small part to its key components offlexibility and enforceability. It provides theparties with the ability to bridge the culturaland legal gaps between their backgroundswhilst producing an end resultwhich is of very real practical use to thevictorious party.
Claudia T. Salomon and MatthewSaunders are co-chairs of DLA Piper'sinternational arbitration practice in NewYork and London, respectively.
