Arbitration is increasingly featured in media and many of us may be familiar with arbitration in sports and in labour disputes, but few are familiar with arbitration in the context of international commerce.
One reason why we don’t hear much about arbitration is that arbitration is usually private. For a reason or another, companies prefer to keep their business conflicts away from the public. One would be surprised to learn that a large percentage of business conflicts are solved by arbitration without any reference of the disputes or the awards in media. This is evident by the commonality of arbitration clauses in business contracts, in particular those involving cross-border business deals.
Think about two suspicious business partners from two different nationalities. Both may be doubtful about the fairness and neutrality of the national court of other party, but in vast majority this is not the case. In practice, parties from different legal backgrounds, for instance common law, civil law or perhaps Islamic law, may face difficulty dealing with a foreign court that applies a foreign procedure. Their lawyers are trained to approach legal conflicts differently. Language or local culture can also restrict a party’s ability to litigate. By choosing a neutral forum, parties disarm and strip each other of unfair advantage and eliminate possible bias. However, arbitration is not only practical in international disputes, it can also be very effective in national disputes, and most legal system give effect to party autonomy in selection of a forum for dispute resolution.
Arbitration can provide to be particularly useful for entrepreneurs; where resources are limited, and where parties cannot afford lengthy and costly court proceedings. Despite the apparent complexity, arbitration requirements are simple, and arbitration can be introduced by including an arbitration clause in the contract, most contracts, in fact, with some restrictions. However, arbitration can become an extremely complex topic in practice, therefore it is always advised to refer to a corporate lawyer regarding potential opportunities and risks involved in arbitration as an alternative dispute resolution method.