In a nutshell
International arbitration addresses any case or potential dispute between parties – usually located in two different countries – and is the most common form of alternative dispute resolution (ADR). “At the most basic level, international arbitration attorneys are international litigators in a transnational justice system,” says Donald Donovan of Debevoise & Plimpton. “It's a system that's validated by both national and international law, but not run directly by any given state.” Arbitrations often arise from clauses included by companies in their commercial contracts with one another. This means that, if a dispute arises between them, they are obliged to arbitrate their dispute rather than pursue traditional litigation.
Arbitration provides a binding solution to the dispute by way of an arbitral 'award'. The award can be enforced internationally through the provisions of the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards, which more than 140 states have ratified. “Private parties often prefer international arbitration because it provides a neutral and relatively confidential forum, specialist arbitrators and greater ease of enforcement of the award in multiple jurisdictions. The New York Convention is unique in that there is no equivalent international treaty in force around the globe to ensure the international currency and enforcement of domestic court judgments,” explains David Lindsey, partner and cofounder of international arbitration boutique Chaffetz Lindsey in New York.
The types of cases heard in international arbitration are typically cross-border commercial disputes that occur in situations like joint ventures or corporate transactions (including M&A). “The types of disputes run the gamut, but they are all really linked to investment and transactions outside the home jurisdiction of the claimant,” Nigel Blackaby of Freshfields Bruckhaus Deringer says. Disputes commonly originate in the oil and gas, telecom, privatized public utilities and construction industries.
One specific type of international arbitration is ‘investment arbitration’, where a claim is brought by a foreign investor directly against the host state of its investment. This arises from the likes of multinational ventures, such as energy projects, and can be instigated in two ways: investors and host states either consent in contracts to use international arbitration to resolve disputes, or investors make claims under bilateral (or multilateral) investment treaties (BITs). BigLaw firms – as well as specialist boutique firms in some instances – represent both claimants and defendants in such cases, though they must be careful about conflicts.
The disputes are often considered under a foreign applicable law and resolved under the arbitration rules of the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution of the American Arbitration Association (ICDR), the London Court of International Arbitration (LCIA), The World Bank’s International Centre for Settlement of Investment Disputes (ICSID), or the United Nations Commission on International Trade Law (UNCITRAL). The nature of the dispute largely determines the relevance of each set of rules. Investor-state disputes, for example, are usually arbitrated under UNCITRAL or ICSID, while the LCIA and ICC rules are suitable for virtually all types of arbitration – though the latter is more appropriate for commercial disputes.
What lawyers do
- Receive instructions from the client, who thinks, for example, that their contract has been breached or that their rights under an applicable investment treaty have been infringed.
- Review the contract or treaty, solicit and review relevant documentation and speak to potential witnesses.
- Provide the client with a memo on the merits of the case. This may involve working with local counsel in the relevant jurisdiction.
- If a client wants to proceed, draft the necessary initiation papers – usually a ‘Request for Arbitration’ in accordance with the applicable arbitration rules, such as ICDR, ICC or ICSID – and submit to the relevant arbitral institution.
- The case is then registered and the request is communicated to the respondent, usually by the arbitral institution. The respondent answers, possibly with an objection to the jurisdiction and with a response to the case’s merits. They name an arbitrator.
- In order to establish the tribunal, each party proposes an impartial and independent ‘party-nominated’ arbitrator. The party-nominated arbitrators then usually seek to agree on a ‘president’ or ‘chair’ of the tribunal, failing which, the president/chair will be nominated by the institution. Once constituted, the tribunal will invite parties to the first procedural hearing at the (usually neutral) seat of hearing (often jurisdictions with favorable arbitration laws and culture such as New York, London, Paris, Geneva and Singapore), where the calendar and procedural order for the next steps will be established.
- In commercial arbitration, there is a period for exchanging documentary evidence, during which each side will produce the documents upon which it intends to rely. This does not typically include ‘US-style’ discovery, but a far more limited disclosure process.
- The next steps usually include a very detailed presentation of the facts and evidence by the claimant (including written witness/expert statements and all relevant documentation). This is called a ‘Memorial’– it may also be included in a pre-hearing brief shortly before the hearing on the merits.
- Defense attorneys submit a ‘Defense Memorial’ or response brief with a similar presentation.
- There will often be a further round of ‘Reply’ and ‘Rejoinder’ memorials or briefs.
- Final hearing takes place, where witnesses are questioned and cross-examined before the tribunal, and oral argument is made. The written witness statements filed with the Memorials often take the place of direct testimony at the hearing.
- Submit final, post-hearing briefs. In complex cases, these can be lengthy.
- Tribunal determines award, which must be ‘reasoned' (ie, the tribunal’s reasoning for the award must be set out), in writing, and signed by the members of the tribunal. With a three-person tribunal, a majority determines the award.
Realities of the job
- “The international context is fascinating because, regardless of whether it's a commercial or investor-state arbitration, you're always experiencing different cultures, countries, languages and personalities. It really is such a wonderful dynamic and mix,” says Carolyn Lamm of White & Case.
- “You can assist yourself greatly by having a real command of more than one language,” Donovan explains. "English is of course important, but having a command of other languages as well really helps.” Spanish, Chinese and Russian are three languages in demand. Portuguese is also increasingly valuable for international arbitrators, in conjunction with the growth of the Brazilian market in particular.
- “International arbitration isn't entirely different from courtroom advocacy,” according to Lamm. Compared to US litigation, however, international arbitration typically relies more on written, instead of oral, advocacy and on contemporaneous documents, rather than on witness testimony from parties. In final hearings, for example, written witness statements often take the place of oral direct testimony.
- “In many ways the skills that make you successful in international arbitration are no different from the skills that make you successful in litigation,” Joe Profaizer of Paul Hastings tells us. Elliot Polebaum concurs, elaborating: “It's a good idea to have a grounding in disputes more generally. Working in the litigation department of a law firm is a good place to start, before getting specialized. There are opportunities to become enmeshed in the factual development of a case, learning and handling the disclosure process, including the deposition process in US litigations, and managing the documentation.”
- The job involves a lot of travel to identify relevant documents and interview witnesses. Depending on the circumstances, associates may also travel.
- It's important for international arbitration lawyers to build up their knowledge of economic and financial issues, as these form an important component of the work.
- “Currently there is no overarching set of rules to account for all the various national backgrounds that lawyers in an international proceeding come from, so if you have lawyers from different legal systems they may not be conducting themselves in the same way,” Lamm tells us. Despite this, the differences between European, US and Asian practices, and between civil law and common law, are not as great as they once were. Some say a more universal practice is developing; the International Bar Association’s now widely used evidence rules are an example of this.
- In commercial arbitration, demands for documents from the other side are allowed, but not as much as in the discovery phases of US litigation. Depositions are rarely allowed, unless US parties are involved and the arbitration clause itself calls for them. (See the aforementioned IBA evidence rules for a good summary.)
- International arbitration has provided an effective platform for female practitioners to excel, which is demonstrated by organizations such as ArbitralWomen.
- David Lindsey says: “Participants in the international arbitration Bar share a mutual respect and camaraderie that I have not witnessed in other areas of legal practice.”
- International arbitration is generally a difficult profession to enter, and so it's typical for juniors to develop their skills as trial lawyers first. “The bottom line is you must learn advocacy – how to present on your feet with care, thoroughness and confidence. You also need to know whether you love to do that, because some people just don't excel in that kind of situation,” Lamm informs us.
- New York, London, Paris and Geneva have traditionally been favored as the arbitrators' venue of choice, but Hong Kong and Singapore are quickly becoming popular alternatives. Don't expect newcomers to displace old favorites, commentators reckon the growth of Asian venues is thanks to a wider increase in international arbitration and a desire to emulate successful models found in the Europe and the USA.
- Arbitral decisions have been increasingly challenged over the last ten years; while most of these failed to overturn initial rulings, the last five years have seen a few succeed. Recently the world's largest arbitral settlement between the shareholders of Yukos Oil and Russia was challenged and defeated in a court in the Netherlands. This decision has been appealed and it will be interesting to see the effects the ruling will have on the enforcement of international arbitration awards. ConocoPhillips has sued the Venezuelan government concerning asset dumps before the Delaware Uniform Fraudulent Transfer Act. So far the Venezuelan government has succeeded in the delaying of proceedings, the result of this case may have a key impact on the enforcement of arbitral rulings against states.
- Jenner & Block's Anton Valukas tells us: “Arbitration has become as complex as civil litigation. It's not unusual for arbitrations to involve extensive discovery, motion practice and protracted resolutions. As a result, arbitration may not continue to be the alternative choice for resolving matters.”
- Reacting to complaints that arbitration has become increasingly costly and slow, at the start of 2016 the International Chamber of Commerce (ICC) announced new time scale expectations for the submission of awards to try and combat the problem.
- Class arbitrations have been around in the USA for some time but thanks to some companies prohibiting customers from pursuing class arbitrations these actions are on the decline. Outside the USA it's a different story; although still infrequent, class arbitrations are increasingly springing up and commentators expect this to continue in the coming years.
- Alternative funding, such as third-party funding, will continue to finance arbitrations. Third-party financing sees external investors stump up the cash for companies to pursue arbitrations, on condition the investors pocket a proportion of any settlement awarded. Despite some hostility to arrangements in certain areas, some jurisdictions are warming up to the method; Hong Kong is set to review its restrictions on third-party funding.
- The number of investor-state disputes has increased considerably in recent years, with energy, oil, gas and mining companies leading the charge. As governments begin imposing limitations and conditions on investors' abilities to take on foreign governments, this incline in cases could soon start leveling off.
- “A longer term trend is that ordinary disputes are becoming larger and more complicated, involving more money, more parties, more parallel proceedings, and more complex substantive issues,”according to Joe Profaizer.
- According to Elliot Polebaum of Fried Frank,“international arbitration has become the dispute resolution mechanism of choice for international business. Big transactions involving important contracts can lead to significant and high-stakes disputes, and there has been an increasing number of such disputes in recent years.”
- Keep an eye on the dispute between ConocoPhillips and Venezuela over the illegal expropriation of oil investments to watch how another sovereign state attempts to push back against arbitral decision: Venezuela is currently trying to get the ruling overturned.
- The status of a series of international trade deals which have been in the process of being negotiated over the last year has been placed under threat in a volatile political climate. The new president has announced his intention to withdraw from TPP, a deal to which the US was a signatory but which had not yet been ratified. It remains to be seen if this position will continue to be the case upon Trump's inauguration. The Comprensive Economic and Trade Agreement between Canada and the EU has been signed.