International commercial arbitration is a widely used method for resolving cross border business disputes. It offers an alternative to court litigation and is often preferred by companies operating across different jurisdictions due to its flexibility, confidentiality and global enforceability.
In this guide, we explain what international commercial arbitration is, when it applies and why businesses frequently choose it to resolve disputes. We also outline how to access a free 30 minute consultation with a solicitor if you need advice tailored to your commercial circumstances.
What is international commercial arbitration?
International commercial arbitration is a private dispute resolution process where parties agree to submit a commercial dispute to one or more arbitrators, rather than a national court. The arbitrators act as neutral decision makers and issue a binding decision known as an arbitral award.
Arbitration is based on consent. This consent usually comes from an arbitration clause in a contract or a separate arbitration agreement. Once agreed, the parties are generally required to resolve disputes through arbitration rather than litigation.
In an international context, arbitration is used where the dispute involves parties from different countries or where the commercial relationship spans multiple jurisdictions. It’s particularly common in sectors such as construction, energy, shipping, finance and international trade.
When is arbitration considered international?
A commercial arbitration is typically considered international where the parties are based in different countries or where the contract is performed across borders. Arbitration may also be international if the governing law of the contract differs from the country where the parties are based.
The international nature of the dispute is important because it affects issues such as procedural rules, enforcement of the award and the choice of seat or legal place of arbitration. The seat determines which national law governs the arbitration process and which courts have supervisory jurisdiction.
Understanding whether a dispute is international helps determine the most appropriate arbitration framework and strategy from the outset.
Why businesses choose international arbitration
One of the main reasons businesses choose international arbitration is neutrality. Arbitration allows parties to avoid being subject to the courts of the other party’s home country, which can be a concern in cross border disputes.
Confidentiality is another key advantage. Unlike court proceedings, which are usually public, arbitration is private. This can be important where disputes involve sensitive commercial information or reputational concerns.
International arbitration is also valued for its enforceability. Arbitral awards can be enforced in many countries around the world under international conventions, making it easier to recover assets across borders.
In addition, arbitration allows parties to select arbitrators with specialist expertise in the relevant industry or legal area. This can be particularly beneficial in complex commercial disputes.
How international commercial arbitration works
International arbitration usually begins with an arbitration agreement. This is often included in the original commercial contract and sets out how disputes will be resolved.
When a dispute arises, the claimant will commence arbitration in accordance with the agreed rules. The parties then appoint one or more arbitrators, depending on what the agreement provides.
The process typically involves written submissions, exchange of evidence and, in some cases, oral hearings. Once the tribunal has considered the case, it issues a final arbitral award. This award is binding on the parties and enforceable in accordance with international law.
Common arbitration institutions and rules
International commercial arbitration can be conducted under a range of institutional rules or on an ad hoc basis. Some of the most commonly used arbitration institutions include the International Chamber of Commerce, the London Court of International Arbitration and the Singapore International Arbitration Centre.
Each institution has its own set of procedural rules that govern how the arbitration is conducted. These rules cover matters such as the appointment of arbitrators, procedural timetables, interim measures and costs. Institutional arbitration offers the benefit of administrative support and established procedures, which can help keep the process organised and efficient.
Alternatively, parties may choose ad hoc arbitration, often conducted under UNCITRAL rules. This approach offers greater flexibility but places more responsibility on the parties to manage the process effectively.
Enforcement of international arbitral awards
One of the strongest advantages of international arbitration is the enforceability of arbitral awards. The UK is a signatory to the New York Convention, an international treaty that allows arbitral awards to be recognised and enforced in over 160 countries.
This means that an award made in one country can often be enforced against assets in another, subject to limited exceptions. Courts are generally supportive of arbitration and will only refuse enforcement in specific circumstances, such as where the arbitration agreement was invalid or there was a serious procedural irregularity.
In the UK, enforcement is usually straightforward, provided the award meets the necessary requirements. This global enforceability makes arbitration particularly attractive for international commercial disputes.
Arbitration versus litigation
While arbitration offers many benefits, it’s not always the right choice for every dispute. Compared to litigation, arbitration can sometimes be more expensive, particularly where multiple arbitrators are appointed or where proceedings are complex.
Arbitration also offers limited rights of appeal. This can be an advantage in terms of finality, but it may be a disadvantage where a party believes the tribunal has made an error of law.
Litigation, on the other hand, may be more suitable where urgent court remedies are required or where precedent and public rulings are important. The choice between arbitration and litigation should be made carefully, ideally at the contract drafting stage.
Related: When to Start Commercial Property Litigation
Common issues and risks in international arbitration
Poorly drafted arbitration clauses are a common source of dispute. Ambiguous wording can lead to arguments over jurisdiction, applicable rules or the seat of arbitration, causing delays and increased costs.
Other risks include managing costs, coordinating evidence across jurisdictions and dealing with parallel proceedings in different countries. These issues highlight the importance of early and strategic legal advice.
Having specialist legal support from dispute resolution solicitors can help parties navigate these challenges, from drafting effective arbitration clauses to representing their interests throughout the arbitration process.
Using arbitration effectively in international disputes
International commercial arbitration is a powerful tool for resolving cross border disputes, but its effectiveness depends on careful planning and informed decision making. Understanding how arbitration works and when it’s most appropriate can help businesses protect their interests and resolve disputes efficiently.
Please note that this article is for informational purposes only and isn’t a substitute for legal advice. We encourage readers to contact Osbourne Pinner for case specific guidance.
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