FOLLOWING the banking collapse of 2007 there was much speculation that disputes would increase as parties sought legal redress for a range of alleged wrongdoings including mis-selling, professional negligence and breach of contract. It is only now that data is starting to filter through as to whether this speculation was justified.
Disputes, however, do not always pass through the courts. For this reason, a key indicator of the “market” for contentious matters has been the number of disputes referred to the leading international arbitration institutions in the course of 2009. A recent survey conducted by Hogan Lovells revealed a 16 per cent increase. These findings indicate both an increase in commercial disputes and a shift in the attitude of the global business community towards the use of international arbitration and the bespoke dispute resolution mechanism that it provides.
In view of the increasing usage of international arbitration it is perhaps surprising that financial institutions, for the most part, do not routinely incorporate international arbitration clauses into their agreements. One theory is that resistance to the use of arbitration is generally derived from the comfort and familiarity banks and financial institutions have with the tried and tested, but perhaps inefficient, solutions that litigation in national courts provides. Litigation does indeed retain an advantage in situations where, for example, a simple domestic debt claim is all that is at issue. It is however the financial industry’s increasing use of complex financial agreements that frequently extend across multiple jurisdictions which can significantly benefit from the use of international arbitration.
What distinguishes international arbitration from litigation is that it can meet the particular needs of parties from different legal and cultural backgrounds. Depending on each particular transaction or contract, the parties can create a customised arbitration agreement to govern how any potential dispute should be resolved. Parties are able to decide, among other things, the national law that will govern their dispute, in what country the dispute will be decided, the procedure that will be followed and, perhaps most importantly, who will decide the dispute. The selection of the law, procedure and location of the arbitration encourages legal neutrality and comfort between multi-national business partners, while the ability to choose who will decide the dispute is a unique advantage.
Shipping and construction disputes have long relied on arbitrators with specific industry expertise, but now it is cross-border financial and commercial transactions that require persons with specific experience and understanding to efficiently resolve these disputes. Furthermore, since international arbitration is a private and typically confidential process, businesses are reasonably able to control the extent to which their dispute enters the public domain. Judgements of awards from international arbitration can also be enforced in more than 140 countries. The convention requires courts of contracting countries to give effect to private agreements to arbitrate, and to recognise and enforce arbitration awards made in other contracting countries. This stands in contrast to court judgments where, at least outside the EU, the existence of reciprocal enforcement mechanisms is at best patchy, and which sometimes face years of protracted litigation to be recognised and enforced in a foreign jurisdiction.
Given the benefits of a mutually agreed and confidential dispute resolution process, coupled with arbitrators who are leaders in their field and judgments that are enforceable by way of an international convention, it is no surprise that the use and acceptance of international arbitration has steadily increased. It is time the City re-evaluated its perspective on what its commercial counterparts have long known and enjoyed as an efficient and effective forum for the resolution of cross-border disputes.