International Commercial Arbitration: ADR in Cross-Border Busimess Disputes (page 1)

Cross-border transactions are increasingly commonplace.  Because of the volume of transactions between parties of different countries, it is incumbent upon counsel to be familiar with various ways to handle possible disputes arising from these agreements.  Part of this preparation is to choose an appropriate dispute resolution method.  This essay reviews the principal mechanisms for resolving international commercial disputes and the advantages and disadvantages of each.  It discusses arbitration, mediation, litigation, and the relative strengths and drawbacks of each. 

Arbitration: The Agreement, Mechanics and Process

Arbitration is a party-controlled, voluntary and binding form of alternative dispute resolution.1 The parties, typically by prior written agreement, place a dispute before a designated person or panel rather than a court. The parties may initiate arbitration without a prior agreement by submitting a claim to an arbitral organization.2

Arbitration is similar to an adversarial trial. Although less formal than a trial, procedurally and functionally, the arbitration panel acts as a neutral judge. The arbitral panel, often referred to as a tribunal, hears evidence and decides the case presented. Typical panels are comprised of one or three arbitrators.

Selecting qualified arbitrators is the first requisite of a satisfactory arbitration.3 An unbiased, experienced and knowledgeable arbitrator is crucial to the integrity and fairness of the arbitral process.4 Moreover, in light of the relatively nuanced, trial-like process which often involves complex transnational legal issues, it is important to select arbitrators sophisticated in the areas of law and commerce applicable to the dispute. Importantly, arbitrators may be anyone the parties agree to, including non-lawyers.  Non-lawyers with extensive experience in the specific field at issue—such as construction, engineering, or finance—can be suitable.  Industry expertise enhances prospects for understanding of the business issues at stake, as well as accurate application of substantive law and avoidance of mistake. 

In presenting the case to the panel, the parties are usually represented by counsel.  A distinct advantage of arbitral proceedings is the ability for parties to use their normal counsel.  Litigation in a foreign court requires the added effort and expense of retaining local counsel for representation before the foreign court.  The attorneys present their client’s case to the arbitrators in an effort to win a favorable arbitral award.  Subject to modification by the parties’ agreement, the court-like process of opening statements, direct and cross-examination and closing arguments are usually followed.

The parties agree on how the evidence may be offered. Frequently, depositions, interrogatories and requests for admissions may not be available. Such a limitation on discovery reduces the costs commonly associated with litigation, yet may also restrict access to and admission of compelling evidence.5

An important difference from trial is that binding arbitration is a purely private alternative. It is completely confidential. Arbitration is governed by contract law, and is not subject to public proceedings or judicial and legislative rules of procedure and evidence.

An important difference from trial is that binding arbitration is a purely private alternative.  It is completely confidential.  Arbitration is governed by contract law, and is not subject to public proceedings or judicial and legislative rules of procedure and evidence.

Depending on applicable rules, the arbitral tribunal may be empowered to determine issues of legal privilege and interim relief.6 The power of the tribunal is defined by the parties' agreement and the applicable rules used in administering the proceeding.

*Peter V. Baugher is a partner at Schopf & Weiss LLP, a firm concentrating in business litigation based in Chicago. He is also President of the Chicago International Dispute Resolution Association ("CIDRA," www.cidra.orgback
1 "Alternative Dispute Resolution" ("ADR") describes a variety of methods used to resolve conflict out of court, including negotiation, mediation and arbitration. Part of the impetus for ADR is to make it as easy as possible for adversaries to resolve their conflicts. See, generally, Luther T. Munford, "The Peacemaker Test: Designing Legal Rights to Reduce Legal Warfare," 12 Harvard Negotiation Law Review 377 (Spring 2007). The number and percentage of lawsuits decided by trial has fallen dramatically over the past several decades. This decline seems at least in part attributable to the high cost and delay entailed by trials (and U.S. litigation's discovery and motion practice), as well as attendant risks, uncertainties, and adverse impact on business and professional relationships. Marc Galanter, "The Vanishing Trial: An Examination of Trials and Related Matters in Federal and State Courts, " 1 J. Empirical Legal Stud. 459,460 (2004). back
2 The principal statutes governing arbitrations are the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq., and the (Illinois) Uniform Arbitration Act, 710 ILCS 5/1, et seq. back
3 See, generally, David W. Rivkin and Carolyn B. Lamm, 317 Alternative Dispute Resolution: The Litigator's Handbook(American Bar Association, Section of Litigation, 2000).back
4 Id. back
5 The arbitration panel may issue subpoenas for witnesses to be present at a hearing, yet may not receive testimony outside the presence of the tribunal. See, e.g., Title 9 U.S.c. § 7 Federal Arbitration Act. back
6 See, e.g., (Rule R-31, American Arbitration Association's Commercial Arbitration Rules, governing the introduction of evidence at arbitral proceedings, which states "[t]he arbitrator shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client"). back