Arbitration: Essential Tool For Doing International Transactions

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Although it may seem premature and pessimistic to think about dispute resolution when you’re entering into a new contract that is actually the very time you should do so. The often complex nature of cross-border transactions is generating a rising trend in international disputes. With a well drafted dispute resolution provision you place yourself in the best possible position should anything unexpected go wrong, allowing you to negotiate from a position of strength when amicable resolution is still possible and providing you with an appropriate avenue for formal proceedings should that eventually become necessary.

What is international arbitration and advantages for the resolution of international commercial disputes?

Unlike litigation before national courts, international arbitration is a neutral andprivate process that derives from the parties’ agreement to refer their future disputes to arbitration. Where parties agree in writing that all disputes arising out of or in relation to a contract will be resolved by an arbitral tribunal (usually one or three arbitrators) the parties are free to select not only the venue of arbitration, usually a neutral third place unconnected with any party involved, but they may also select the arbitrator(s), independent and impartial experts, who will hear and determine the dispute as part of a private and confidential process.

While agreement to international arbitration is voluntary, once chosen, compliance with the outcome is not. International arbitration results in a binding award, which is not subject to appeal on the merits and may be challenged on only very limited procedural grounds. Further, unlike an equivalent court judgment, which is difficult to enforce in a jurisdiction other than where it was rendered, a party seeking to recover under an arbitration award in its favour can take its award for enforcement in any of the 152 countries which are currently party to the New York Convention.[1] This is a very significant advantage of arbitration for parties contemplating entering into any cross-border transaction.

Parties to such cross-border transactions will necessarily come from different countries. The national court of one party will therefore be a foreign court to the other party (and vice versa). This means that a party to a contract which does notcontain an arbitration agreement may find itself obligated to commence proceedings in a foreign court, before a foreign judge that will apply its counterparty’s national legislation, which is completely foreign to the party in question. Thus, the opportunity to choose a panel of neutral arbitrators (the nationality of a sole or presiding arbitrator is almost always different from that of the parties) that will hold the proceedings in a neutral venue is another significant advantage of arbitration for companies involved in international businesses.

On a similar note, international commercial contracts may involve complex issues, which may, for their resolution, require specific technical knowledge or particular qualifications and experience. Unfortunately, many national court systems are comprised of judges who lack the necessary expertise to resolve disputes arising out of complex international transactions. On the other hand international arbitrators, unlike national judges, can be selected on the basis of the particular expertise required to effectively and efficiently resolve a specific case.

Another advantage is the procedural flexibility granted to the parties, which stems from arbitration’s respect for party autonomy. From the national law, which will govern the substance of the dispute to the place of arbitration and the particular set of arbitration rules, parties are accorded with broad autonomy to choose the procedure that suits them best.

Given arbitration is a private process that is confidential in nature, international arbitration is thus substantially more likely to produce non-public settlement of the dispute than national court litigation. This can, among other things, prevent a further harm to the businesses involved by protecting the reputation of the parties and perhaps helping to ensure the possibility of continued commercial relations following the resolution of the particular dispute.

TYPES OF ARBITRATION

If you are considering using arbitration for the resolution of disputes arising out of your transaction, the next point to consider is what type of arbitration would be most suitable.

Institutional vs. ad hoc arbitration

There are two main types of arbitration. Te first are arbitrations conducted under the auspices of one of a number of international arbitral institutions, and the second are those which are handled on an ad hoc basis and thus solely arranged between the arbitrator(s) and the parties in dispute.

When opting for ad hoc arbitration parties will usually adopt a ready-made set of arbitration rules (such as the UNCITRAL Arbitration Rules) that are tailored to the specific requirements of this type of arbitration or, even may be conducted under rules drawn up by the parties themselves.

On the other hand institutional arbitration is supervised and fully administered by an arbitration institution of the parties’ choice. Amongst those commonly selected by parties involved in transactions in Asia is the Hong Kong International Arbitration Centre otherwise known as the HKIAC. Where parties select institutional arbitration, the proceedings are administered in accordance with the arbitration rules devised by each institution, in the case of HKIAC, the 2013 Administered Arbitration Rules.[2] HKIAC has been involved in work to promote the use of arbitration in Cambodia, taking part in the 2014 Phnom Penh Arbitration Day, as well as meeting members of and working with the newly formed National Commercial Arbitration Centre (NCAC).

In deciding whether to choose institutional or ad hoc arbitration, various considerations must be taken into account. Ad hoc arbitration may be slightly cheaper, insofar as no fees are payable to an institution administering the proceedings, however such fees usually make up only a small proportion of the overall costs involved in an arbitration proceeding. Further, while ad hocarbitration does provides parties with more flexibility to devise rules and procedures for their particular dispute, devising such a set of individual procedures requires substantial specialist input and can involve significant time and expense. For this reason, especially for parties with limited experience in conducting arbitration, it is generally advisable to opt for an institutional arbitration and maximize the benefits of using a set of rules and procedures which have been fine tuned through their use by many parties in many previous disputes. By using an arbitral institution like HKIAC parties have the benefit of ensuring that the proceedings are administered in orderly manner by an experienced Secretariat with a certain degree of “quality control” over the proceedings, the arbitrators and also the awards.

The Hong Kong International Arbitration Centre in Cambodia

The Hong Kong International Arbitration Centre was established almost thirty years ago, in 1985, to meet the growing need for arbitral services in the Asia-Pacific. A not-for-profit company which is completely free and independent from any influence or control by the Hong Kong Government or otherwise, HKIAC is governed by a council composed of leading arbitration practitioners and business people from all around the world. During its 30 years of operation is has enjoyed mounting success in relation to the number and complexity of the cases it handles.[3]

Following recent developments surrounding the establishment of the NCAC in Cambodia, HKIAC has been keen to develop links and share its experiences to help foster the growing use of arbitration by Cambodian businesses. Through visits and meetings between members of the HKIAC Secretariat and persons on NCAC’s Board of Directors, participation in conferences and educational seminars and the facilitation of links between judicial and arbitration professionals in each jurisdiction, HKIAC hopes to see the growth of arbitration as the chosen means of dispute resolution in commercial transactions in Cambodia and ensure that Cambodian business people and legal professionals can look to Hong Kong and the HKIAC for advice and assistance where necessary.

[1] Convention on the Recognition and Enforcement of Arbitral Awards, June 10, 1958,http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html.

[2] See http://www.hkiac.org/en/arbitration/arbitration-rules-guidelines

[3] For further information on the Kong Kong International Arbitration Centre please refer to http://www.hkiac.org/en/.

(Source: Ruth Stackpool-Moore, Managing Counsel HKIAC)

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