International Arbitration: The Basics

For commercial parties based in different countries, resolving a dispute in a national court can raise difficult questions of jurisdiction, applicable procedure, language, and enforceability of the resulting judgment abroad. International arbitration was developed largely to address these difficulties, and an arbitration clause is now a standard feature of many cross-border commercial contracts.

Why parties choose arbitration

Arbitration allows parties to select a neutral forum and, often, a tribunal composed of arbitrators with relevant subject-matter expertise, rather than being bound to the courts of one party's home jurisdiction. Proceedings can typically be conducted in a language and under procedural rules chosen by the parties in advance, and awards are, in most cases, confidential — a significant consideration for parties who wish to avoid public litigation of commercially sensitive disputes.

Perhaps the most practical advantage is enforceability: under the New York Convention, to which more than 170 states are party, an arbitral award made in one contracting state can generally be recognised and enforced in another with considerably fewer obstacles than a foreign court judgment would face under equivalent circumstances.

Drafting the arbitration clause

The value of arbitration depends heavily on the quality of the clause agreed at the contract stage. A well-drafted clause should specify the arbitral institution (such as the ICC, LCIA, or a regional institution relevant to the parties), the seat of arbitration (which determines the procedural law and the courts with supervisory jurisdiction), the language of the proceedings, the number of arbitrators, and the substantive law governing the contract. An ambiguous or incomplete clause is a frequent source of costly preliminary disputes about the arbitration process itself, before the underlying commercial dispute is even addressed.

Parties negotiating cross-border contracts should treat the dispute-resolution clause as a substantive term to be negotiated with care, not a boilerplate provision to be resolved at the end of the drafting process.

This article provides general legal information and does not constitute legal advice.