WEB DESK: A contract leads to corporate relationships out of which typical disputes arise quite often. It is evident that with the advent of globalisation the outreach of businesses has expanded and the role of multinationals stands spread.
This expanded role has given rise to international disputes which quite often are concerned with jurisdiction issues.
Where disputes arise in global businesses, the organisations generally opt for arbitration and such an option gives rise to the question of cross national jurisdiction and effectiveness of arbitration as a dispute settlement process. It is now generally believed that majority of the businesses organisations choose arbitration for dispute resolution.
This write-up while putting to one side the cost implications of using international arbitration over litigation, explores the outcomes that international arbitration can offer over litigation, but it is worth remembering that there will still be certain situations resulting in time-consuming and leading to costly litigation, especially matters involving regulators or government.
Let us examine the mover and shaking forces that have led to an explosion and growth in international arbitration? Rise in cross-border disputes has been there due to expanding role of globalisation in international businesses. One may find some more nuanced considerations that international arbitration gives rise to that are not just about the cost of litigation. For example, while the issue of legal privilege does not provide for common rules at the international level, the IBA does attempt to provide some structure.
These rules are required to be adopted by the parties either in whole or in part as they provide procedural outlay to deal with evidentiary matters in such cases. The process discussed above shows a significant flexibility in the process that is quite opposite to the rigid framework of the court rules.
Arbitration no doubt offers cost-effectiveness and flexibility,two very important factors that have contributed in shaping the growth of the mechanism provided for dispute resolution. Privacy is another significant factor in this regard.
The fact is that international arbitration is considered by majority as an effective way to keep business practices, trade secrets, industrial processes, intellectual property, and proceedings which may lead to possible negative impacts to the businesses. One should not assume that everything in arbitration happens automatically or remains secret or is treated confidential; the existing procedures only confirm that such proceedings can remain private and confidential.
One clear indication of why international arbitration has become such a popular route to dispute is the advantages it provides over traditional methods of dispute resolution. However one may know that how hard it is to enforce a judgment against someone in another jurisdiction. So how does international arbitration fares when it comes to enforcement of agreements?
A little light on the question of enforcement has been provided by the practitioner’s handbook for international arbitration. It may be noted that parties involved in cross-border disputes can request an arbitraltribunal to incorporate the settlement agreement into an arbitration award known as a ‘consent award’ or ‘award on agreed terms’, or an award explicitly agreed by the parties. For example, an enforcement issue can emerge in a foreign jurisdiction on the basis of breach of contract under the procedures of the New York Convention. This convention fortunately, bears the benefit of more than 1750 precedents involving more than 65 different countries. The list of contracting states who have signed up to the convention is pretty comprehensive and includes all the major economies around the world.
The Convention does contain provision for the subject of enforcement and provides defence mechanism to attempt the enforcement challenge. See article V, which states among other things: “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that a party was subject to an incapacity or were given improper notice of the appointment of the arbitrator, or the award deals with a difference outside the contemplation of the submissions to arbitration, or the composition of arbitral authority was not as agreed by the parties or the award has not become binding at the time of enforcement, all of which, to my mind represents reasonable grounds to challenge enforcement”.
One knows that for the process of resolution, enforcement is a significant consideration. However, Article V of the New York Convention does not necessarily mean that it is in any way easy for the subject to get an easy enforcement by challenging and defeating enforcement especially where the arbitration has been conducted properly and by agreement. The provisions in Article V are relatively narrow and actually relate to a perfectly sound mode of good governance.
It is now evident that where awards are given with the mutual consent of the parties, the problem of enforcement is very limited and usually awards are enforced automatically. The experience in this regard shows that such arbitration awards are enforced without many problems and in a very limited number of cases the parties confront enforcement problems. The difficulties generally arise where attempts are made to enforce awards relating to damages, and some problems may also arise in encountering and enforcing declaratory and specific performance awards.
What are the advantages of arbitration; these include flexibility, cost-effectiveness, privacy and enforcement through local jurisdictions under the New York Convention.1 There appears to be a broad consensus across the variety of arbitration rules that different jurisdictions provide and now there appears to be an increasingly popular choice amongst growing number of corporations to face and deal with the question of multiple jurisdictions.
The experience in this regard shows that the two most popular jurisdictions for providing international arbitration stand located in London and Paris, but Hong Kong and Singapore are also gaining momentum quite rapidly. This growth of option for dispute resolution through arbitration is gradual and the dispute resolution scene is changing rapidly.
It appears that some of the most hotly debated topics in arbitration do not necessarily represent the most divergent views in this regard. Arbitration is not considered as ‘overregulated’, and many business have even expressed a need for further regulation of the conduct of specific actors. This is an indication that the arbitral community is apprehensive of further extensive ‘macro-regulation’ but would welcome limited corrective ‘micro-regulation.'”
It is now widely recognised that a proper scrutiny of processes and procedures is needed, but it is unlikely to result in anything outside the scope of individual jurisdictions, it all explains why London continues to top the preferred location for arbitration. It may be noted that vast majority of actors contributing towards the growth of arbitration happen to be lawyers and they are already subject to stringent regulatory controls.
As globalisation continues to break down barriers of trade, the dispute resolution which traditionally had been sought inside a particular jurisdiction’s legal system is no longer capable of, or desirable for, resolving disputes for multinational corporations.
As long as the flexibility, cost-effectiveness, privacy and enforcement through local jurisdictions remain the outcome it suits businesses and trade across several jurisdictions. It is evident that these trends will continue to grow and dominate the dispute resolution scene relating to international businesses.
(The writer is an Advocate and is currently working as an Associate with Azim-ud-Din Law Associates Karachi)
1. Subject to the provisions of Article V
Source: Business Recorder