Handling international disputes

This unit considers different ways of settling cross-border disputes between multinational companies, instead of going to court, the companies can choose the arbitration process – a specially appointed person or panel decides how the matter should be resolved.

Key words: to favour, reject, patent court, arbitration, commercial disputes.

1. Before you read, discuss these questions.

1) A cross-border dispute means a serious commercial disagreement between organisations based in different countries. What kind of disputes do you think are likely to affect multinationals?

2) What are the disadvantages of litigation between companies from different countries? Are there any advantages?

3) Why is arbitration sometimes thought to be better than going to court?

Reading task

2. Read the article on the opposite page and answer these questions.

1) Where does all the information about corporate lawyers’ preferences come from?

2) Is cost a main factor in preferring the arbitration process to litigation?

3) Do the majority of lawyers questioned prefer international arbitration or international litigation?

4) Name three key reasons for in-house general counsel to favour arbitration.

5) In which specific area are arbitration costs said to be at least the same as those for litigation?

6) How do lawyers feel about the idea of being able to appeal against arbitration decisions?

7) How does the article describe the general business environment at the time the report appears?

8) Are arbitration procedures becoming more common or less common? Provide some evidence to back up your answer.

9) Give details of the companies represented in the study / the findings of the study.

10) What three reasons do lawyers give for avoiding litigation?

11) Are arbitration decisions always accepted without question?

12) Which reason was given as a cause for concern for both arbitration and litigation procedures?

 

 

Arbitration preferred in cross-border disputes

 

Three out of four top lawyers at multi­national companies would prefer to settle cross-border commercial disputes by arbitration rather than litigation, because of the unpredictability of decisions made by local courts. Key reasons put forward in favour of international arbitration include: more flexible procedures; the lack of publicity surrounding hearings; and the better chances of enforcing any awards made by an arbitration panel.

But many in-house general counsels say international arbitration is at least is as expensive as litigation, particularly for fairly small disputes. Most also reject the idea of introducing an appeal system for arbitration decisions - appeals could help to remove some of the legal inconsistencies that exist between individual judgments, but they would inevitably add time and cost to the process.

The findings are the result of a study commissioned by consultants PricewaterhouseCoopers (PwC), with research done by Queen Maiy’s School of International Arbitration at the Uni­versity of London. The report comes as more companies invest abroad, and the complexity of cross-border disputes multiplies. As a result, there has been visible growth in the use of arbitra­tion and other ADR (alternative dispute resolution) procedures – for example, the International Chamber of Commerce’s dispute resolution service has seen more than 500 requests for arbitration annually in recent years. Many big law firms have also been increasing their capacity in this area. The study itself centers on the responses of more than 100 in-house general counsel at multinational corporations. About half of these were in Europe, 30 per cent in Asia, and 15 per cent in the Americas. Most had annual sales of at least $500m.

According to the findings, 73 per cent of those questioned preferred to use international arbitration, either on its own or in conjunction with other dispute resolution mechanisms, such as mediation. By contrast, cross-border 55 litigation was favoured by only 11 per cent. Gerry Lagerberg, PwC partner, said that this smaller group that still preferred litigation generally used very specialized courts – for example, patent courts – or operated mainly in countries with well-regarded court systems.

The most commonly cited reason for the remainder to avoid litigation was ‘anxiety about litigating under a foreign law before a court far from home – although the cost and time involved and concern about lack of confidentiality were also mentioned.

However, half the respondents also said cost was their main concern about arbitration. Surprisingly, two-thirds of the in-house lawyers believed this was more expensive than cross-border litigation, and another 23 per cent thought costs at least comparable. In spite of growing challenges to arbitration awards, 91 per cent of respondents rejected the idea of includ­ing an appeal mechanism in international arbitration, saying obtaining a final decision was more important.