Arbitration is an increasingly popular method of resolving disputes, but drafters of business contracts need to be aware that arbitration may not be suitable for every dispute. The question of whether or not to arbitrate often comes down to when you want to decide arbitration is right – before or after a dispute.
Many people decide to include an arbitration clause during the negotiation of the business contract. The parties may decide to include an arbitration clause in their business contract that applies to future disputes. The decision to arbitrate after a dispute has occurred is clearer at this point because the matters in dispute are known. It can be difficult to reach an agreement to arbitrate at this stage if one of the parties has an interest in delaying matters or believes litigation provides a strategic advantage.
To take advantage of the ease of enforcement, the arbitration clause needs to be in a form recognized as valid in both the seat of the arbitration and the location of enforcement. The drafter should also consider whether the debtor has any assets in the country in which the award creditor anticipates enforcement proceedings to occur. Courts generally enforce arbitral awards following the conclusion of arbitration.
One advantage of arbitration is that the parties to arbitration have the ability to refer their disputes to a neutral forum. This is important when parties originate from different jurisdictions and may be wary of referring disputes to the home court of the other party. An arbitration proceeding can provide an impartial and efficient setting to resolve a dispute. In addition, arbitration clauses permit the parties to choose how many arbitrators will resolve the dispute and how to select them. Accordingly, parties can ensure the composition of the tribunal and where the arbitration will be held.
A well drafted arbitration clause provides certainty regarding where disputes will be resolved. In litigation, disputes over jurisdictions can be expensive and time-consuming. Although jurisdictional disputes can arise in arbitration, they can generally be minimized or eliminated by careful drafting of the arbitration clause.
An advantage of arbitration over litigation is the ability to customize procedures to the needs of a particular dispute. Parties have the ability to negotiate a suitable procedure and are in a position to influence the procedure more than what is possible in a court proceeding.