Australia: International Arbitration The Preferred Method Of Cross-Border Dispute Resolution, Says Survey

Last Updated: 6 November 2008
Article by Björn Gehle

Key Points

  • International arbitration is the preferred method for cross-border dispute resolution.
  • Almost 90% of all arbitration awards are complied with voluntarily.
  • Most corporations are able to enforce awards within 1 year and recover more than 75% of their value.

Earlier this year PricewaterhouseCoopers and the University of London's Queen Mary School of International Arbitration published their second report on International Arbitration: Corporate attitudes and practices.

The first survey was published in 2006 and focused on the attitudes and choices of major international corporations towards the resolution of international commercial disputes. The main message resulting from the 2006 survey was that international arbitration was believed to have significant benefits over other forms of dispute resolution mainly because of its very effective international enforcement mechanisms.

The most recent survey now focuses on what experiences corporate counsel have had in relation to the enforcement of arbitral awards. The results have once again confirmed that arbitration remains the preferred method of dispute resolution for cross-border disputes - for a good reason!

The survey

The survey summarises data from over 82 questionnaires and 47 interviews of major international corporations. Ninety-seven percent of the participating companies have a turnover of more than US$500 million; 68% have an annual turnover of more than US$5 bn. Eighty-eight percent had used international arbitration and an astounding 86% were satisfied with it, with 18% being very satisfied.

Some key findings of the study were that the majority of disputes were resolved without any intervention of a national court, and that if enforcement proceedings were required they were usually efficient and successful.

Do arbitral awards always require enforcement proceedings?

The survey revealed that in only 11% of the cases were enforcement proceedings required. In all other cases the non-prevailing party voluntarily complied with the award. Eight-four percent of the participating corporations indicated that in more than 76% of their cases the awards were complied with voluntarily.

The high level of voluntary compliance is significant evidence of the power of an arbitral award as well as the strength of the enforcement framework provided by the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Is it difficult to enforce arbitral awards?

In fact, the opposite is true! The survey found 84% of corporations received more than 75% of the value of an award following enforcement proceedings.

In only 19% of the cases in which enforcement proceedings were required (note: only 11% of all cases required enforcement proceedings) did the parties encounter difficulties with the enforcement.

Seventy percent of problems associated with enforcement were caused by a lack of assets owned by the losing party or an inability to identify sufficient assets, rather than problems associated with the enforcement process itself. These problems are not specific to international arbitration and would occur no matter what dispute resolution method is used.

In only 17% of all cases problems were caused by local hostility to foreign awards or local law time limits for the enforcement of awards. Primarily because of the large number of nations who have adopted the New York Convention (142 in total) only 6% of participants had problems with the enforcement as a result of a country not being a signatory.

It seems that enforcement problems are specific to certain countries rather than a systemic problem relating to international arbitration overall.

Are parties likely to settle in arbitration proceedings?

Settlement is more likely to occur in arbitration. Nearly one in three disputes referred to arbitration is settled. Several corporations indicated that they are "more likely to settle disputes during arbitral proceedings than when they were involved in proceedings before national courts".

Twirty-two percent of corporate counsel participating in the survey reported achieving settlement before the arbitral award was rendered, 7% of which became subject of an award by consent. Of those disputes which were settled prior to the award, 43% were settled before the first hearing, 31% before the hearing on merits and 26% after the hearing (but before the award was made).

The survey also revealed that 40% of corporate counsel have negotiated a settlement after the award was rendered, usually changing the terms of the award.

The reasons for doing so varied. Thirty-three percent negotiated a post-award settlement to reduce cost, followed by 23% who settled to reduce the time spent.

A majority of post-award settlements included a discount to the amount awarded. However, 35% of all post-award settlements were for an amount between 76 - 100 percent of the amount awarded and 9% of the settlements were for an amount between 51 - 75 percent of the award awarded.

These results demonstrate that arbitration is a much better option to reach settlement and therefore to preserve the business relationship between parties.

The use of consent awards also provides an additional level of comfort in that the agreed settlement can be enforced in more than 142 nations which have signed the New York Convention.

The verdict

International arbitration remains the preferred method of cross-border dispute resolution. Considering the inherent benefits in enforcing outcomes in multiple jurisdiction it is obvious that in most circumstances there is no better option than international arbitration.

As the survey demonstrated international arbitration is effective in practice and the enforcement of awards, where such is necessary, works well.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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