The Impact of (Mis)communication on International Commercial Arbitration
Summary and Keywords
International commercial arbitration is often considered the principal method for solving disputes between international business parties mainly because of its final and binding nature. International commercial arbitration is a valued alternative to litigation in foreign courts, while also avoiding simultaneous legal claims in different jurisdictions around the globe. In this context, effective communication among private parties, which is defined as steering clear of potential miscommunications among them in international business transactions, is essential for the negotiation of successful arbitration agreements and efficient international arbitral proceedings. Complexities concerning the communication among parties located in different countries—with different cultures and distinct legal traditions—abound. Such complexities are informative of the main stages of international commercial arbitration, namely, before reaching the negotiation table, during the writing of the arbitration agreement, and after a legal dispute arises. This topic has not been subject to comprehensive analysis, despite its significant impact on the parties’ business needs and related optimization of their interests. In addition, trending relevant issues in the field include the recently signed Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, the increasing judicialization of international arbitration proceedings, the increasing use of artificial intelligence and empirical studies in international commercial arbitration.
This article provides an overview of the impact communication has on international commercial arbitration, focusing on the importance of effective communication among private parties. It addresses potential miscommunications among the parties by outlining the main stages in an international business transaction in which parties may contemplate international arbitral proceedings. It provides a basic framework of this type of communication. Due to the nature of the topic involving private parties, public international law references are limited to when unavoidable.
International arbitration is the primary method for resolving disputes between states, corporations, and/or individuals (Blackaby et al., 2015, p. 1). Although its popularity continues to grow in this globalized world, it has been used for centuries to resolve international disputes (Born, 2015, p. 11). Lew, Mistelis, and Kröll (2003) defined international arbitration as “a dynamic dispute resolution mechanism varying according to law and international practice,” and most jurisdictions do not rely on a single rigid definition. International arbitration’s essential features are that it is a private mechanism of dispute resolution designed and controlled by the participating parties to determine their rights and obligations within the scope of their submission. This determination is final and biding among the parties (Lew et al., 2003, p. 3).
Accordingly, arbitration is an alternative to national courts. Its finality and binding nature clearly differentiate it from other alternative dispute resolution (ADR) mechanisms such as mediation and conciliation.1 The finality and binding character of arbitration is both a contractual commitment of the parties (the manifestation of the private law nature of arbitration) and the effect of the applicable law (highlighting the public law nature of arbitration). An implied obligation of arbitration is the exclusion of court proceedings (Lew et al., 2003, p. 5). In other words, the dispute is not resolved in domestic courts, and, exempting limited cases based on minimum due process considerations, there is no appeals process.2
International arbitration differs according to the nature of the dispute and the parties involved; although their basic structure is similar, each type involves specific features (Knöll, 2006, p. 78). International arbitration is classified as state arbitration if between states (Knöll, 2006, p. 78); as investment arbitration if the dispute involves the host state and at least one party is a foreign investor (Bishop, Crawford, & Reisman, 2014, p. 10; Baltag, 2017, p. 23); and international commercial arbitration if pertaining to transactional disputes of commercial nature.3 The last is the focus of this work, because international commercial arbitration comprises a minimum of 90% of all international business arbitration (Folsom, 2016, p. 63). In addition, communication-related breakthroughs in international state or investment arbitration are often minimized by the direct presence and/or involvement of public parties and diplomatic delegations.
The article begins by contextualizing international arbitration as an alternative dispute resolution (ADR) mechanism and the main reasons international parties find it so attractive. It focuses on the complexities involved in international commercial arbitration and how parties located in different countries—with different cultures and distinct legal traditions—can secure an arbitration agreement designed to meet their business needs and optimize their interests. In such a context, this article addresses the communication underpinning the main stages of international commercial arbitration, namely, before reaching the negotiation table, during the writing of the arbitration agreement, and after a legal dispute arises. The article concludes by presenting trending issues in the field.
An Overview of International Commercial Arbitration
International commercial arbitration is always consensual, with limited exceptions based on domestic legislation as authorized by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).4 Crucially, this convention also requires the recognition and enforcement of arbitration agreements.5
An arbitration agreement is a written contract, typically a clause in a larger contract (the underlying contract, hereinafter), which requires the parties must settle legal disputes outside of court; in this context, they must submit to international arbitration (Born, 2015, p. 85). The parties may submit current or future disputes. The former is known as a submission agreement or a compromis, but it may be significantly harder to convince parties to submit to arbitration once the contract has been signed and the problems are no longer theoretical. Parties involved in arbitration proceedings are technically denominated claimant (called “plaintiff,” if it were a court case) and respondent (“defendant”).
A valid arbitration agreement requires both an obligation to arbitrate in good faith and an obligation not to litigate (not to resort to the judiciary to resolve the dispute) (Born, 2015, pp. 315–334). An arbitration clause must be in writing for the parties to be able to enforce the arbitral award abroad (Maurer, 2018, p. 156).6 Most jurisdictions (either through their domestic laws or their own courts), when considering the severability (separation, i.e., autonomy) between the arbitration agreement and the underlying contract, assume the validity of the arbitration agreement, and allocate to the arbitral tribunal the power to determine if the underlying contract exists, and if it does, its validity and related legal requirements (Blackaby et al., 2015, pp. 104–106).7
Most jurisdictions have enacted domestic statutes differentiating domestic arbitration from international arbitration, aiming at a secure, arbitration-supportive legal system in the international sphere.8 States recognize the need for predictability and certainty in international commerce in light of the significant challenges posed by international arbitration itself, including choice of law, jurisdictional issues, and enforcement uncertainty (Born, 2015, p. 45). Therefore, the New York Convention and the vast majority of current national arbitration regulations define international arbitration as that which refers solely to “arbitration agreements that have some sort of foreign or international connection,” in the words of a world expert (Born, 2015, p. 158).9
The harmonized practices of international arbitration are based on sophisticated rules of procedure, which are administered by institutional arbitrations and supported by domestic legislation significantly influenced by the United Nations Commission on International Trade Law (UNCITRAL) Model Law (Blackaby et al., 2015, p. 1).10 Such rules have been enacted domestically (entirely or partially), regardless if a country follows the common or the civil law legal tradition. Common law jurisdictions (Canada, India, Pakistan, the United States, and southern Africa) use the English legal system as their paradigm (Self, 2009, pp. 231–233).11 Stare decisis binds judges of cases initiated in lower courts to the precedent set by the decisions of higher courts. Such higher courts’ decisions have effects beyond the parties that initiate the current claim. By contrast, in civil law countries, the decisions of higher courts are not necessarily binding on parties outside the legal dispute submitted to the court. Countries of civil law tradition include Continental Europe, the former colonies of Belgium, France, Germany, Portugal, and Spain in Africa and the Americas, which inherited their legal framework from Roman-Germanic institutions, and were inspired by the strong codification movements of France, Germany, and the Scandinavian countries (Garoupa & Ligüerre, 2011, p. 288).12 Former Soviet republics and Asian jurisdictions have peculiarities due to historical experiences, but can be classified, preponderantly, as belonging to the civil law tradition.
Countries with legal traditions as different as India, which is preponderantly a common law jurisdiction (Bedi, 2018, p. 192), and Croatia (civil law jurisdiction) use the Model Law as a paradigm for their legislation on international arbitration (UNCITRAL, n.d.).13 The procedural rules aim for optimal effectiveness throughout the arbitral process, minimizing judicial intervention; the involvement of courts is limited to assisting the enforcement of arbitration agreements and awards (Blackaby et al., 2015, p. 1). Despite such harmonization efforts, distinctions remain with regard the specific social context in which the international arbitration is taking place, the participants involved, and the nature of the dispute (Allori, 2007), pp. 223–224). Recently, governments decided to adopt UNCITRAL Model Law in its entirety, as the case of Mongolia, and academics have been calling to other countries to follow their example (Noussia, 2019, p. 161).
Reasons for International Commercial Arbitration
This section outlines the reasons why parties should consider the ADR mechanism of arbitration rather pursue litigation in foreign courts. Long-arm statutes, which authorize defendants to be sued in courts in jurisdictions where they have had no physical presence, but merely engaged in conduct such as negotiations or even texting, provide extra incentive for parties to negotiate an arbitration agreement (Maurer, 2018, p. 150).14 Arbitration is a “deluxe” procedure, conducted in a specialized forum, where the arbitrators have technical and (usually) legal expertise on the subject of the dispute. They also have time to hear the case and consider its implications—as opposed to generalist judges (Bühring-Uhle, Kirchhoff, & Scherer, 2005, pp. 105–128).
Arbitration is often more cost effective than court proceedings, because a valid arbitration agreement excludes the potential for multiple lawsuits in different jurisdictions—as long as the seat of the arbitration is in a state member of the New York Convention. The absence of appellate review (an appeal on the merits of the case) and the fact that arbitration tends to be faster also add to its cost effectiveness. Arbitral proceedings are conducted in the language(s) selected by the parties in their agreement. This saves time and the expense of hiring official certified translators, which are often required by certain jurisdictions. Moreover, in international arbitration, the defeated party typically bears the legal expenses (Maurer, 2018, p. 158).
International commercial arbitration proceedings are generally not open to the public. Yet, in light of the recent trend in institutional arbitrations rules to increase transparency, parties should emphasize their need for a confidentiality requirement in their arbitration agreement (Maurer, 2018, p. 159).15 For parties interested in the protection of intellectual rights (including patents and trade secrets) and those who view litigation (or even commencement of arbitration itself) as potentially damaging to their reputation (either based on cultural views, as in Asia, or due to their industry or particular trade, such as in boutique firms), an international arbitration agreement specifically addressing confidentiality is extraordinarily valuable.
Parties may also choose the procedural rules applicable to their arbitral proceedings as long as their agreement encompasses disputes “capable of settlement by arbitration.”16 On the other hand, the non-arbitrability doctrine covers matters that cannot be solved by international arbitration in a given jurisdiction. The decision on non-arbitrability is left to each country, because public policy issues are better determined by individual jurisdictions. The rationale for the non-arbitrability doctrine is that it allows each contracting state to the New York Convention to determine the matters of domestic law that require more judicial protection and therefore cannot be arbitrated; these typically reflect concerns based on public interest and policy (Born, 2016b, pp. 87–90). Unlike the UNCITRAL Model Law, the Convention opted not to provide an all-encompassing legal framework for the totality of aspects of international arbitration (Born, 2015, p. 35). Due to the flexibility of the Convention, countries are more assured of their sovereignty regarding which matters must be litigated and which can be resolved in an expedited fashion through arbitration.
Communication and the Complexity of Negotiating Arbitration Agreements
A literature review of the main treatises available in English shows that communication among parties specifically addressing international commercial arbitration rarely receives much attention. To fill this gap, this article discusses key insights related to the international business transactions literature.
A helpful checklist for actors involved in negotiating international business contracts is based on the LESCANT model, which stands for seven cultural variables: Language; Environment and Technology; Social Organization; Context (an assessment of explicit and implicit communications); Authority Conception; Non-Verbal Behavior; and Temporal Conception (time) (Victor, 1992).17 This work focuses on the verbal communication aspect of international parties contemplating international commercial arbitration. Nonetheless, an overview of all variables is helpful.
Language includes attitudes about one’s own language as well as attentiveness to those speaking a foreign language. Once a language is agreed on international negotiation, relevant recommendations include speaking slowly; avoiding slang, colloquialisms, and false cognates (and all words that may be similar in sound but have different meanings); and rephrasing and summarizing frequently. Environment includes the impact on negotiators of factors referring to: space and size, climate conditions, food, traffic, population density, surroundings (e.g., beds, desks, phones, chairs, offices, lighting) and perceptions of technology, such as its use as a means of control, or its ability to disturb overall harmony, including religion practices. Social organization includes the influence of factors referring to class, family, leisure, religion, literacy, individualism, and gender roles. Context is determined by the degree to which certain cultures are comfortable with written words, solely, and/or need to include a high tolerance for vagueness. Authority involves status, hierarchy, the weight of titles, and the level of collegiality. Non-verbal addresses touch, smell, colors, symbols, gestures, adornments, dress codes, eye contact, the display of emotions, and the quality of one’s voice (speaking directly, tone, appropriate volume of one’s voice) (Victor, 1992, pp. 223–225).18 Finally, time reflects what a given society considers long-term commitments to be.
Communication is considered a source of increased risk in international business transactions, because parties are often less familiar with each other than in domestic transactions. Language and time zone differences affect communication, rendering it incomplete or prone to misunderstandings. This is exacerbated by a lack of frequent face-to-face meetings, contributing to difficulties in negotiating small changes, as well as related challenges involving the ability to observe the other party’s conduct and performance (Brand, 2019, p. 1).
Common legal challenges posed by international transactions include difficulties in understanding the applicable laws and regulatory framework; knowing who the authority is who actually decides the applicable law; understanding who bears the costs of duties, quotas, and licensing requirements necessary to implement the transaction; and coping with potential fluctuation caused by natural or market forces that affect factors such as currency, insurance, and freight and overall costs (Brand, 2019, p. 2). Moreover, international business transactions tend to rely more on e-communication, which may contribute to additional misunderstandings caused by language, interpreters, and what should actually be written down (Silkenat, Aresty, & Klosek, 2009).
Accordingly, negotiating international arbitration agreements is an intricate process. They may be even more complex than negotiating the underlying contract they aim to protect, due to detailed specificities, including choice of law provisions (Lando, 1986, pp. 13–41),19 a lack of legal (and cultural) knowledge about arbitration, and inherent bias among the negotiating actors, for example.
Main Stages of International Commercial Arbitration and the Potential for (Mis)communication
This article now turns its attention to the stages that precede the negotiation process itself, analyzing the most relevant underpinnings of international commercial arbitration and culture (Tayeb, 2003, p. 10).20 Informed by such considerations, the article further addresses the writing of the international arbitration agreement and the most relevant legal provisions parties should communicate.
What To Do Before Arriving at the Negotiation Table
Contrary to general assumptions, intercultural contact among groups does not lead to mutual understanding; instead, it tends to confirm each group’s own identity. (Hofstede, Hofstede, & Minkov, 2010, pp. 387–388). English as a first language may be a liability, because when talking to others proficient in the language, native speakers may not notice the nuances in their language that could be missed by the listener (Hofstede et al., 2010, p. 389). Humor also varies from culture to culture. For instance, in Dutch culture, an insult such as “you fool” is considered a friendly joke among colleagues, but in Indonesia, where status and honor must be respected, such an offense may be taken literally (Hofstede et al., 2010, p. 391). Price haggling might be expected in certain jurisdictions such as Mexico, when there is a measure of hierarchy involved in the relationship but perceived as deplorable in other areas where it is considered demeaning to the service or product offered.
Studies exploring how to avoid multicultural-related difficulties reveal how key actors, including lawyers and negotiators, are unaware of their own cultural determinants and those of others involved in the transaction; consequentially, cultural differences may be underestimated, misrepresented, or discarded entirely (Wolff, 2018, p. 20). In general, the developed world is coming to terms with the existence of implicit bias regarding age, race, gender, religion, national origin, and sexual orientation (Levinson & Young, 2010, p. 2).21 The international arbitration community recently acknowledged its lack of diversity, with a third of respondents to a global survey reporting that limited progress has been made regarding ethnic, cultural, and geographic diversity (International Arbitration Survey, 2018). Diversity is a major concern in international arbitration because the lawyers, arbitrators, and tribunals involved need to reflect the parties looking to them to resolve their legal dispute.
Ethnocentric orientations are often a relevant factor in failing to address the foreign party appropriately, yet the dynamics are not made easier if an individual is aware of the multicultural implications, because such self-consciousness may lead to challenges when attempting to act in accordance with such differences (Wolff, 2018, p. 20). Stereotypes, which may capture generalizations about a culture, might seem helpful (what is different from what is common “back home”); however, they are actually an obstacle to knowing the variety that permeates a given society and, consequentially, how to behave in a business setting. Retaining specialized negotiators and local parties, including local legal counsel, reduces the risk of miscommunication, but these may bring challenges of their own, particularly if an interpreter is needed (Seelye & Seelye-James, 1995, p. 114).
International arbitration is negotiated and developed in an environment marked by the silent values of cultures such as differences in the meaning of time (strict or flexible attitudes toward punctuality), gender roles (whether women are considered independent), dress codes (formal or informal), body distance (how closely participants interact physically), and general business dealings (the formality of the proceedings) (Seelye & Seelye-James, 1995, pp. 20–39). Caution is highly recommended before extrapolating one’s own cultural assumptions; it is best to learn how to respect other cultures by studying their traditions and behavior, and understanding they are different—but that they do not hold less valid ambitions, memories, allegiances, understandings, or expectations (Cotterrell, 2006, pp. 732–733).22
English is the current language of transnational communication in the business community. Tension exists between the original language of the speakers and the use of English in international business, despite the apparent uniformity conveyed by communicating in one standard language (Garzone, 2007, p. 311). At the international level, the increasing necessity for accurate translation of legal texts and documents across languages requires they convey the appropriate meaning in both languages, including pragmatic and functional intentions as well as the implications of the original text (Gotti, 2007, p. 12).
Business terms such as bond, contract, property, waiver, and patent do not exist in the abstract, as they need a legal framework to define their scope and application (Bühring-Uhle et al., 2005, pp. 8–9). Lawyers and business parties alike may believe that they are committing to a particular meaning when communicating with a foreign counterpart, but in reality, their obligations may be quite different. Suppose a person from France and a person from the United States negotiate the sale of a farm in France. Because French law distinguishes between movable and unmovable property, while U.S. law differentiates between real property and personal property, French law would include farm animals and machinery, while such assets would not be encompassed under U.S. law (Bühring-Uhle et al., 2005, pp. 8–9).
Legal discourse, specifically, is culture bound to the extent that an acceptable translation of “all the legal terms of one text from one context to another is at times impossible” (Gotti, 2007, p. 12).23 Despite English being used as the lingua franca in international business, the parties may not share the same cultural background—let alone communication styles and assumptions (Gerritsen & Nickerson, 2007, p. 105). Research has attributed the failure of potential Dutch–German mergers to the chasm in negotiation cultures, despite the fact that both parties communicated in English (Gerritsen & Nickerson, 2007, p. 106).24
The language chosen is directly associated with forms of reasoning and politeness. Behaviors that may be considered threatening when communicating across cultures include orders and requests; suggestions and advice; reminders; warnings; compliments; expressions of envy or admiration; expressions of strong (negative) emotions; expressions of out of control emotions (regardless if involving tears or laughs); any breakdown of physical control over one’s body (from stumbling to falling down); irreverence and bringing up taboo topics; boasting about one’s own product or achievements; portraying one’s counterpart and/or product in a negative light; raising potentially emotional or divisive topics such as race, class, politics, religion, or the role of women; complaints; interruptions; failure to acknowledge titles and terms of address; requests for personal information; and responses to faux pas and apologies (Brown & Levinson, 2009, pp. 313–315).
Negotiation has an increased likelihood of success if the parties involved are able to understand the reasons for the differences in their viewpoints (Hofstede et al., 2010, p. 26). It is not because the parties are negotiating in English that predominant aspects of U.S. culture such as strong individualism and short-term orientation should be assumed (Hofstede et al., 2010, p. 326). While reinforcing stereotypes is common in negotiation textbooks, which contain several references to “do’s” and “don’ts,” (Docherty, 2004, p. 712) a more promising approach to negotiation is the identification of patterns applicable to group cultures rather than focusing on a single data point (Docherty, 2004, p. 713).
Power distance is a relevant indicator in negotiating styles. Enterprises located in countries with lower power distance indexes, which feature lower hierarchy levels, higher degrees of participation, and a decentralized business culture (Hofstede et al., 2010, p. 76), tend to reach business decisions in a collegial and non-hierarchical fashion (Hofstede et al., 2010, p. 60, 333).25 In general, three factors are strong indicators of power distance: countries at higher latitudes, with smaller populations, and higher GDPs, tend to have a lower power distance index (Hofstede et al., 2010, p. 84).
Collectivist and individualist tendencies also affect business. The English language itself, which capitalizes its pronoun for the first person singular, illustrates the importance of the individual, whereas in Asian countries, which tend to be collectivist societies, harmony and maintaining face (honor) are paramount (Hofstede et al., 2010, pp. 113–118). Uncertainty avoidance, which is the measure of the number of members of a culture who feel threated by ambiguous or unknown situations, relates to prediction of events and the need for written and unwritten rules (Hofstede et al., 2010, p. 191). Even among European countries, there are distinctions: The British are quite comfortable with unwritten rules of behavior (including queuing), while Germans rely more on expertise and method and so are more focused on detailed written rules (Hofstede et al., 2010, p. 216).
Long-term orientation is also a relevant consideration pertaining to communication in international arbitration. This orientation values honor; tradition; reciprocation of greetings, favors and gifts; perseverance rather than quick results; favoring saving by spending the minimum; and ordering relationships by class status. Those factors are linked to Confucian values and are often found in Asian societies, particularly China, Japan, Taiwan, Hong Kong, and South Korea (Hofstede et al., 2010, pp. 236–237). The emphasis on honor affects the decision to arbitrate or litigate (i.e., pursue their claims in court); they also consider future business, rationalizing that the profits of the current year are not as important as the profits to be made in 10 years (Hofstede et al., 2010, p. 245).
Asian countries traditionally prefer mediation and conciliation, based on the assumption that a long-term business relationship may be jeopardized if other avenues are pursued (Folsom, 2016, p. 9).26 Historically, Asian jurisdictions have been reluctant to engage in adversarial proceedings, avoiding courts and arbitration. China, Japan, and Vietnam are particularly disinclined to enter into confrontational styles of negotiation and dispute resolutions. While in U.S. and EU jurisdictions, the contract is considered law and as such, it clearly defines the parties’ expectations, in Asia, parties may be expected to be flexible if requested, even if such flexibility differs from the contractual terms (Folsom, 2016, p. 3).27
Communication and the Writing of an International Arbitration Agreement
As the discussion on cultural variables shows, international commercial arbitration is subject to not only the complex issues international business negotiations involve, but also specific factors of its own. In addition, many factors affect the parties’ communication process before they reach an agreement. These factors affect the dynamics of different negotiation scenarios, requiring a different course of action for various negotiations. Ultimately, the strategic behavior of parties in any negotiation is informative of their current and future behavior (Cooter, 2000, p. 9).28
The Factors Involved in Communicating the Decision of Whether an Arbitration Agreement Should Be Pursued
A major consideration that requires parties to behave strategically is the decision regarding which negotiating style they will use. The negotiating style may be factual (based on the evidence), intuitive (creatively oriented), normative (viewing negotiation as a bargaining process), or analytical (logic-oriented). What is chosen depends on the culture of each party and may change during each phase of the negotiation, including the pre-negotiating phase, as emphasized earlier. It also may depend on timing, should a party need to mention an arbitration agreement if one was not included in the original contract (Wolff, 2018, p. 25). Under no circumstance should a party, especially one with a higher GDP, tell their counterpart that conduct should be pursued in a specific way, because people in every country perceive themselves as being special and unique (Seelye & Seelye-James, 1995, p. 69). At best, this would be counterproductive.
Other relevant factors include the objective of the contract and the industry involved. The oil industry, for example, routinely establishes relational contracts that cover the parties’ expectations over a number of years, rather than a one-time transaction. This is in significant contrast to a contract involving an international sale of goods. In this context, the negotiating parties may consider if they are within the same industry, and whether it is a single contract, and not one that also involves a services contract for maintenance of goods).
The party that tends to be the repetitive player in any transaction is likely to have the advantage in writing the contract draft.29 This includes the tentative provisions of the arbitration agreement (Adams & Cramer, 2013, p. 14). The repetitive player is a party who professionally engages in the commercial activity sought: the seller, in a sale of goods transaction; the moneylender, in a lender contract, and so on. Because the seller is the repetitive party, they often write the first proposal. Most sectors use model clauses developed by sophisticated legal counsel and suited to their needs.
Drafting agreements—including international arbitration agreements—is considered a specialized craft, a work of art that involves the choice of law and choice of forum; yet this does not mean the opposing party will accept the proposed clause (Folsom, 2016, p. 5; Chesler & Sneddon, 2018, pp. 120–121).30 If parties are not in the same industry, the asymmetry of information will likely be higher, because it would be harder to obtain information about the reputation of the repetitive player. Hence, pertinent concerns about specific sectors are illustrative and relevant for future claims arising out of legitimate expectations of the parties and to the interpretation of the arbitration agreement.
In the international arbitration context, specific considerations are required regardless of the industry involved, because parties may not be willing to litigate in courts if a legal dispute arises. This unwillingness is not necessarily due to a particular country’s “superior” legal system in which courts obey the rule of law. Rather, foreign parties tend to be uncomfortable pursuing claims in the jurisdiction of the other party, if for no other reason than they assume hometown bias.31
There are two main considerations which are informative of the negotiation of international arbitration agreements: to evaluate how much leverage, or bargaining power, the party has in relation to the opposing party or parties, and to determine which party values an international arbitration agreement most.
Bargaining power can be measured at a particular time during the negotiation, on a dynamic spectrum or at stages of the negotiation. In the initial stage of the negotiation, before the parties agree to the main terms of their potential contract, a key factor is the parties’ understanding of the purpose of the transaction. In addition, the choice of law—or potentially applicable choice of laws, including provisions on conflicts of laws—is essential for writing an optimum contract and should be analyzed before meeting with the other parties.32 The careful consideration of all these variables (including whether or not to write an arbitration agreement) is of utmost importance, due to the global trend of courts and arbitration tribunals honoring party autonomy, which refers to the contractual provisions regarding dispute resolution mutually agreed on by the parties (Folsom, 2016, p. 23).
In determining the dynamics of bargaining power and which party values more the arbitration agreement, the following course of action is recommended. First, determine the main interests at stake for your client, including if performance of the contract is time sensitive, such as if delivery occurs after the specified time, it would no longer be of value (e.g., if a wedding cake is delivered after the reception). Concerns about payment terms, such as the requirement of escrow accounts, or the existence of general or specific warrants crucial for closing the deal, must be evaluated. The parties must also decide whether force majeure (“acts of God”) clauses and related excuses of performance should be included.
Second, determine the main interests of the counterpart in the negotiation vis-à-vis the interests of the proposing party. For instance, is performance time sensitive for them?
Third, it is crucial to assess which party can endure litigation for longer in a negotiation that precedes the signing of the agreement. Litigation can also occur in multiple jurisdictions (Folsom, 2016, p. 1), known as “parallel proceedings,” which will affect the time and costs each party must spend. Therefore, the party who has more to lose going to court (or courts in different jurisdictions) is the one who ultimately will value writing an arbitration agreement the most.
The importance of the recommendations above is to isolate the most relevant factors for a specific party, which will then be better informed of their own interests and those of the opposing party. This knowledge may postpone potential deal-breakers to later stages in the negotiation, which advances the interests of both parties as it helps build common. Ultimately, the negotiation gains momentum, which is particularly helpful in avoiding tension in the early phases, because it enables trust building among the parties (Silkenat et al., 2009). Nonetheless, despite this framework being traditionally understood as an efficient method for reaching consensus and improving overall communication, no assurances can be made that such a matrix of recommendations will avoid a later stalemate (Fisher, Ury, & Patton, 2011), pp. 42–46).33
A recent contribution from the business literature, negotiauction, may be particularly useful in overcoming deadlocks (Subramanian, 2010, p. xi).34 This framework treats the negotiation as an ongoing competition that outs the pressure on potential buyers, pitted against one another, as well as on potential buyers and potential sellers. This is a departure from the traditional negotiation framework, which assumes that merely pitting buyer and seller against each other creates pressure. Negotiauction also differs from the ordinary auction framework, which assumes the source of pressure arises solely from the buyers competing against themselves (Subramanian, 2010, p. xi).
As outlined above, there is no one-size-fits-all answer to when a party should bring up arbitration as an alternative dispute mechanism in a negotiation, but rather a matrix (general guidelines that describe a diagram of potential choices) of relevant considerations that may or may not be deal breakers.
Critical Legal Issues on Communicating and Writing an Effective Arbitration Agreement
As the discussions on cultural variables and factors relating to an international arbitration agreement reveal, several factors may lead to a miscommunication that ultimately jeopardizes the effectiveness of the arbitration agreement. International arbitration agreements require more than strategy and planning; they necessitate thorough analysis and advanced expertise. The principal goal is to secure an arbitration agreement by design (never by default, that is, by one party being forced to arbitration due to lack of planning).
In light of the above, international arbitration agreements should address several critical legal issues: (1) the agreement to arbitrate; (2) the scope of the dispute submitted by the parties to the tribunal; (3) the use of an arbitral institution—if any—and its rules; (4) the arbitral seat; (5) the number, qualifications, and method of appointment of arbitrators; (6) the language of the arbitration; and (7) a choice of law clause (Born, 2015, p. 85). The following subsections outline the most relevant recommendations regarding writing and communicating about an international arbitration agreement, including suggested additions and exclusions. The parties should keep in mind, however, that the essential terms of an arbitration agreement are easily summarized, “All disputes shall be finally resolved by arbitration” (Born, 2016b, p. 75). Few jurisdictions consider “blank clauses,” which merely mention arbitration without specifying directives such as its seat or how to appoint arbitrators, as indefinite clauses. Nonetheless, because of the legal presumption of the validity of arbitral agreements under the New York Convention, most jurisdictions and arbitral tribunals consider such clauses valid and resort to domestic law to fill in the details (Born, 2016b, p. 75).
Agreement to Arbitrate
As Born states, “It is tautological—but unfortunately not always the case in practice—that any arbitration clause must set forth the parties’ agreement to arbitrate” (Born, 2015, p. 85). It is highly recommended that the parties actually refer to arbitration, and not merely to ADR mechanisms, because only arbitration benefits from expansive international pro-enforcement effects.
The arbitration agreement itself is a contract; as such, it capitalizes on contractual cannons of interpretation: ambiguity is constructed contra proferentem (i.e., against the drafter of the provision); specific terms prevail over general terms, giving effect to all parts of the parties’ agreement; and trade usage (Born, 2016b, p. 92). Moreover, the domestic law of several jurisdictions indicates that international commercial arbitration agreements must be construed in light of a pro-arbitration presumption, expansively interpreting them to include as many claims as possible (Born, 2016b, p. 92).
The Scope of the Dispute Submitted by the Parties to the Tribunal
The scope refers to the claims the parties want submitted to arbitration. It varies according to the interests of the parties and to the domestic attitudes about arbitration (including legislative policy choices and the role of domestic courts in supporting arbitration and abstaining from interfering with it).
The New York Convention assumes the validity of arbitration agreements, exempting defenses based on contract formation such as mistake, fraud, unconscionability, unfairness, duress, lack of capacity, and non-arbitrability.35 These are addressed in the enforcement of international arbitration awards.36 The majority of jurisdictions tend to presume the validity of arbitration agreements, with the practical effect that such claims are examined by arbitral tribunals—including claims attacking the existence and validity of the arbitration clause itself, rather than the underlying contract, due to the separability of the arbitration agreement (Born, 2016b, p. 56).
Most developed jurisdictions have limited non-arbitrability regulations, and these vary on a case-by-case basis. For example, Belgium, Japan, and the United Kingdom do not authorize labor disputes to be subject to arbitration; meanwhile, Japan, New Zealand, EU countries, and several Canadian provinces (Ontario and Quebec, most famously) prohibit arbitration based on consent found in standard forms of consumer contracts, and bankruptcy procedures are also generally barred (Born, 2016b, p. 89). Security regulations and competition claims tend to be arbitrable in developed common law jurisdictions, but non-arbitrable in civil law jurisdictions (Born, 2016b, p. 89). In Africa, non-arbitrable matters include dispute over the status and capacity of a person, and matters involving family law, the public interest, or the state (Mante, 2017, p. 287).
Latin American jurisdictions are traditionally suspicious of international arbitration based on national sovereignty concerns, as arbitration precludes dispute resolution by the domestic judiciary (Blackaby, Lindsey, & Spinello, 2002, p. 3). Ecuador and Mexico were the first countries in the region to sign the New York Convention, overcoming the concerns raised by the sovereignty-based Calvo Doctrine (Blackaby et al., 2002, p. 4). This 1968 doctrine is named for an Argentinian diplomat, Carlos Calvo, who advocated for the protection of the sovereignty of Latin American states. The Calvo clause, included in contracts between a government of Latin American country and a foreign party, states the foreign party is subject to the jurisdiction of the country’s domestic courts (Juilliard, 2007). Developing countries (broadly encompassing those located in the global South and the Middle East) often believe institutional bias involving international commercial arbitration consistently favors countries located in the Global North (Shalakany, 2000, p. 426).
The pro-enforcement bias of awards in the New York Convention is evident in the non-arbitrability doctrine as well as the public policy exception.37 While often invoked in practice, neither exception has been a major obstacle to the enforcement of arbitral awards. The majority of courts defer to the procedural determinations of the arbitral tribunal (Born, 2016a, p. 135). Nonetheless, claims regarding lack of notice and procedural irregularity, including procedural unfairness, have been successful in a few instances.38
National courts also refuse to enforce foreign arbitral awards in the absence of a valid arbitration agreement or arbitral jurisdiction, under the New York Convention.39 Challenges to the jurisdiction of a specific tribunal may address the validity of the parties’ arbitration agreement (attacking issues relating to contract formation) or issues actually submitted to the tribunal (e.g., whether the arbitral award exceeded the scope of the parties’ submissions) (Born, 2016a, p. 135).
Challenges based on issues of contract formation are controversial, and courts are reluctant to recognize defenses that would invalidate the arbitration agreement itself and ultimately preclude arbitration. Parties need to be mindful that such attacks must target the arbitration agreement itself, not the underlying contract, due to the principle of severability between the arbitration agreement and the full contract. After the arbitral agreement is signed, several issues may arise in an international commercial arbitration setting, including unconscionability, duress, fraud, and corruption.
Unconscionability speaks to fairness during contract formation and applies only if the party using such a defense attacks the arbitration agreement itself. Such challenges include grossly unfair seat, extreme bias in selecting the arbitral tribunal, severely one-sided arbitral procedures, and the manner under which the arbitration agreement was negotiated (e.g., deception, unfair pressure tactics) (Born, 2016b, p. 82).
Similarly, duress requires a physical act, or the threat thereof, that is capable of coercing the party into the arbitration agreement. An example might be signing the agreement at gunpoint. However, in practice, this is difficult to prove (Born, 2016b, p. 82).
The New York Convention does not mention the possibility of fraud being involved in the signing of an arbitration agreement, but courts and arbitral tribunals alike recognize this defense (Born, 2016b, p. 83). However, fraud involving misrepresentations concerning the quality of goods, services, and accuracy of balance sheets does not affect the arbitration agreement itself, but rather the underlying contract. As such, the arbitral tribunal would have jurisdiction over the case. Corruption allegations relating to international commercial arbitration would be considered fraud, but are rare because the party often lacks of corroborating evidence, or they may prefer to adduce corruption when enforcing the award and challenging it as against public policy (Uluc, 2018, p. 28). The International Bar Association (IBA) survey of clients regarding corruption is an excellent indicator of the corruption level in a particular jurisdiction, and may offer guidance to parties and adjudicators (International Bar Association, 2010a).
Certain courts exclude arbitration of non-contractual claims when the arbitration clause uses the words “claims arising under this contract” or similar. More expansive terms such as “relating to” or “in connection with” are usually a better choice (Born, 2016a, pp. 31–32). Parties should attempt to avoid such writings.
An example of a concise, broad arbitration clause is, “All disputes relating to this Agreement shall be finally resolved by arbitration.” Should exclusions of certain matters from the scope of the arbitration agreement be necessary, a simple clause might state, “Claims under the following Articles of this Agreement are specifically excluded from arbitration hereunder: (Articles V, VII, and etc.)” (Born, 2016a, p. 260).
A few contracts include clauses such as, “This Agreement constitutes the entire understanding of the Parties and supersedes all proposals, oral and written, all negotiations, conversations or discussions between or among Parties of this Agreement and all past dealings or industry customs” (Adams & Cramer, 2013, p. 4).40 Such clauses are not advisable because they exclude previous deals and industry customs, which may defeat the legitimate expectations of the parties. This example illustrates the importance of defined terms in contractual provisions, which arbitration agreements often are. Defined terms, which are capitalized,are particularly relevant in international arbitration because they prevent repetition throughout the contract (as parties will only defined and explained it once) while avoiding potential ambiguities that may arise without such precise wording.41 Defined terms may have their purpose defeated if the parties use such terms only once in the contract (Adams & Cramer, 2013, p. 49). In addition, when creating obligations, parties should use “shall,” reserving “will” for conditional events (Adams & Cramer, 2013, p. 82).
The Choice to Use an Arbitral Institution and Its Rules
International commercial arbitration may be institutional or ad hoc. The former involves an arbitral institution whose procedural rules are applicable to the parties’ dispute, with administration and supervision of the proceedings implemented by the institution. Research indicates institutional arbitration rules do “not work out particularly favourably for the developing countries in the matter of venue, choice of arbitrators, as also fees and charges leviable by the institutions concerned” (Afro-Asian Legal Consultative Committee, 1980, p. 131).42 Accordingly, parties should consider such claims when deciding which arbitration style would be most beneficial.
In ad hoc arbitrations, the parties agree to submit their dispute to arbitration without the benefit of a supervising institution. Parties may select a preexisting set of arbitral procedural rules designated for ad hoc arbitrations; if so, they should also designate an appointing authority to choose the arbitrator(s) in the absence of agreement among the parties (Born, 2016b, pp. 26–27).43 The IBA issues guidelines on evidence taking, which are intended to supplement the legal rules chosen by the parties (whether institutional, ad hoc, or any other rule that may be applicable to the arbitration proceedings) (International Bar Association, 2010b).
All international commercial arbitration institutions are private entities (Sweet & Grisel, 2017, p. 45). Hence, they are outside the domain of influence of the country where they are located. Their rules are overall similar, and distinctions may rise with regard to the existence of formal review, publication of the award, emergency arbitrators and the scope of interim measures. The International Chamber of Commerce, established in 1923, is considered the world’s preeminent international arbitral institution, and has “less of a national character” than other leading institutions. Younger institutions may lack experience, a proven track record, and the general reputation that most sophisticated parties in international business transactions require (Born, 2016a, p. 37).
Judging by the number of disputes heard, the Chinese International Economic and Trade Arbitration Commission (CIETAC, headquartered in Beijing with regional offices in Shanghai and other Chinese cities) is currently the major arbitration center, followed by the ICC (located in Paris), the American Arbitration Association International Center for Dispute Resolution (the international branch of the American Arbitration Association (AAA), headquartered in New York City), the Hong Kong International Arbitration Center, and the Singapore International Arbitration Center (Folsom, 2016, p. 71).44 The Cairo Regional Center for International Commercial Arbitration (CRCICA), founded in 1979, is an independent non-profit international organization under the auspices of the Asian-African Legal Consultative Organization (AALCO); despite its regional character, the CRCICA hears disputes from parties outside the region (Born, 2016a, p. 43). The Vienna International Arbitral Center, founded in 1975, is the preferred institution for parties located in Central and Eastern Europe, and the London Court of International Arbitration, established in 1892, is the second most popular European arbitral institution (Born, 2016a, pp. 41, 50).
To the extent that the reputation of such centers is considered relevant, selecting one of these and communicating that choice to the other party is perceived as the path of least resistance. Moreover, these leading institutions frequently administer arbitrations seated almost everywhere, regardless of where they are located.
The Arbitral Seat
The arbitral seat, also known as the place of arbitration, is a legal concept (i.e., not a geographic location, as it is not necessarily where the hearings take place). In practice, the arbitral seat is the state the parties specify in their agreement; absent agreement by the parties, it is the place the arbitrators or institution chooses to be the seat (Born, 2016b, p. 111). The arbitration legislation of the arbitral seat determines matters external to its proceedings such as the role of national courts in supporting arbitration (including the delimitation of the competence of the arbitral tribunal in relation to the courts). It also outlines the level of judicial assistance provided in matters relating to constituting the tribunal, assistance in evidence taking, non-judicial intervention with the proceedings, provisional relief, and annulment of the arbitral award (Born, 2016b, pp. 115–117).45 Interestingly, a few jurisdictions consider the specification of a seat in an arbitration agreement as an agreement to submit to the courts of that jurisdiction to confirm the arbitration award (Kutner, 2019, p. 45).
The law of the seat of arbitration also directs the internal issues of the arbitral proceedings. The domestic provisions may encompass the following: evidentiary rules; oaths for witnesses; conduct of hearings, including basic standards of fairness; the arbitrators’ discovery powers; the rights of lawyers and their professional obligations; potential limitations on the autonomy of the parties to agree on substantive and procedural issues regarding the arbitration; the arbitrators’ appointment and removal; the remedial powers of arbitrators, including the ability to order injunctions; and the form and publication of the award.46
The most relevant consideration involving the arbitral seat is that the party should insist it be in a New York Convention member state. This is beneficial for both the claimant and the respondent because the international arbitration award must be enforced in New York Convention jurisdictions.47 The convention itself has a pro-enforcement bias, assuming the validity of international arbitration agreements and awards, exempting limited policy-oriented exceptions, as explained in subsection ii. Countries party to the New York Convention tend to be more confident relying on arbitration as an ADR, because their national courts are less likely to intrude on arbitration proceedings.
Another significant consideration is choosing a politically stable country for the arbitral seat, because radical political change may disrupt the impartiality of courts. In such instances, the parties’ choice of seat of arbitration is more likely to be invalidated (Born, 2016b, p. 86).
Different jurisdictions have recently built on international arbitration tradition. Singapore became the preferred venue for international commercial arbitration in Asia, whereas South Africa, despite its attempts and potential, has not developed due to nonverbal and intercultural elements conveying racism (Self, 2009, p. 235).
Based on perceived judicial influence on international commercial arbitration, Brazil, Russia, India, and China are often avoided as arbitral seats. In Brazil, lower courts previously issued unpredictable international arbitration decisions that were difficult to reconcile with the applicable law; today, Brazil is the most popular seat in ICC arbitrations (Born, 2016a, p. 60; Fomasar, 2019).48 Russia, a contracting state to the New York Convention since 1993, has undertaken judicial reforms that may dilute the expertise of the then existing Supreme Arbitrazh, which was specialized in commercial cases, including arbitration (Born, 2016a, p. 61). The Indian Supreme Court has traditionally rendered conflicting decisions concerning the standard of review for arbitral awards, including reviews on the merits (Born, 2016a, p. 62). Arbitration in China (except for Hong Kong, which has an outstanding reputation given its highly trained common law lawyers and its laws based on UNCITRAL) may involve several uncertainties, including the enforceability of ad hoc awards and the use of foreign-based institutional rules (Born, 2016a, p. 63).
The Number of Arbitrators, Their Qualifications, and Method of Selection
Issues relating to the selection of arbitrators are among the most critical in any international arbitration. While this work focuses on the communication among the parties, and arbitrators and institutions are beyond the technical definition of parties, it still touches on issues tangential to both and recommends the parties consider the incorporation of international standards into their agreements (International Bar Association, 1987, 2014).49
As the old legal saying goes, “An arbitration is worth what the arbitrator is worth.” This should be extended to include the lawyers and the parties themselves (Lalive, 1992, p. 1). The obligation of the arbitrator to remain neutral may require international arbitrators to adopt a comparatist approach concerning applicable law and the parties’ attitudes and reactions (Lalive, 1992, p. 3).50 Similarly, counsel in arbitration should try to understand the legal and non-legal culture of the arbitrators in order to anticipate their reactions; and party-appointed arbitrators should only ask questions through the chairperson, as questions of the tribunal as a whole (Lalive, 1992, p. 4).
Common practice advises parties to agree on the arbitrator, and absent such agreement, to ask the institution to choose. Due to delays and potential lack of expertise, it is not recommended that parties delegate this crucial strategic choice to courts. The party that values arbitration the most may be willing to communicate that resort to the judiciary is not an option. The parties should not designate an arbitrator by name due to scheduling difficulties, potential health issues, and similar problems that could leave them waiting.
Asymmetry of information and the difficulty in assessing arbitrators’ track records led to accusations of a lack of transparency in arbitral proceedings. The Internet and the use of public qualitative and quantitative data provided by former parties may help reduce such asymmetry.51 The reputation of arbitrators, often referred to as their “track record,” is a major factor in parties’ appointment choices, particularly regarding the selection of the tribunal president or chair.
The number of arbitrators should be an odd number; the literature often recommends a panel of three arbitrators, because it reduces the likelihood of mistakes and increases the diversity of the tribunal itself (Born, 2016a, p. 65). Both are important considerations due to the involvement of different cultures in international arbitration and the lack of appellate review of decisions. However, the final determination should reflect the complexities of potential legal disputes that arise and the contractual obligations.
In addition, the parties should communicate regarding whether to include the qualifications they desire in their arbitrator(s), especially the president of tribunal, in their arbitration agreement. Language fluency and technical expertise are often considered, but both drafting parties should bear in mind that the more qualifications they add, the smaller their potential pool of arbitrators will be.
The Language of the Arbitration
The language (or languages) of the arbitration agreement and its award should always be specified in the agreement, because this reduces future uncertainty and affects the choice of arbitrators (Born, 2016a, p. 72). Absent parties’ agreement and inclusion, the choice will be left to the tribunal, which generally selects the language of the underlying contract or the agreement itself (Born, 2016a, p. 72).52
Choice of Law Clause
A choice of law clause should be included as a separate clause, independent of the arbitration clause, to avoid confusion with the choice of procedural law for the arbitral proceedings (almost always the law of the seat of arbitration) and for the underlying contract (Born, 2016a, p. 73).
Choices of procedural law and of the seat of arbitration are of particular value to multicultural parties because they may not share the same legal traditions. Parties located in common law jurisdictions are comfortable with detailed discovery and engaging the other side in depositions, whereas parties in civil law jurisdictions (regardless if located in Asia, Africa, South America, or Continental Europe) find this confrontational. The preparation or “coaching” of witness before trial is often accepted in common law jurisdictions, but unacceptable in most civil law countries.
The vast majority of arbitral institutions require arbitrators to sign statements certifying their independence upon their nomination and to update such statements throughout the proceedings (Born, 2016a, p. 71). If an ad hoc arbitration will be used, on the parties are strongly advised to include a clause regarding the independence and impartiality of the arbitrators.
Prudential considerations lead to the inclusion of additional specific clauses. The parties should communicate regarding confidentiality and, if one party is particularly interested in confidentiality, it should be written into the agreement. In the absence of default provisions (i.e., how to proceed if respondent refuses to participate in arbitral proceedings despite properly notified) in the rules chosen by the parties, it is sensible to include such a provision in the arbitration agreement (Blackaby et al., 2015, p. 100).53
Should a party be interested in other ADR mechanisms, the parties should carefully determine the procedure, including defining the specific duration, the obligations of both parties, and which agents will represent the involved parties, in their arbitration agreement (Blackaby et al., 2015, p. 102).54
Parties may also want to include information about their expectations and contractual equilibrium, which may provide guidance for future arbitral panels in assessing claims of excuse of performance and related defenses of the contract itself. Among the principles of the lex mercatoria derived from reported arbitral awards, pacta sunt servanda (“contracts shall be obeyed”) and rebus sic stantibus (the mandatory nature of contractual clauses exists as long as the initial set of circumstances among the parties remains the same, without unforeseeable events altering the initial equilibrium of the contract) are noteworthy because they are related to potential excuses of performance. Nonetheless, these principles on their own are generally insufficient when applied to actual disputes, due to the absence of rules indicating where the application of pacta sunt servanda terminates and that of rebus sic stantibus begins (Samuel & Currat, 1989, p. 245). Accordingly, parties have incentives to actually negotiate provisions on excuse of performance and related liability.
Parties should avoid arbitration clauses that determine the location of the arbitral seat based on the identity of the claimant: that is, whoever will start the arbitral proceedings (if the buyer, in city X; if seller, in seat z) due to the increased uncertainty and the possibility of a biased settlement brought about by this “procedural gamesmanship” (Born, 2016a, p. 64).
Uncertainty may also stem from the existence of discretionary power for only one of the parties to start arbitration or to pursue a claim in a specified judicial forum other than that included in the arbitration agreement. Such provisions provide unilateral options, because only one of the parties will benefit from its existence. In Australia, Singapore, the United Kingdom, and the United States, such clauses are considered acceptable, whereas in civil law jurisdictions they may be inadmissible (Blackaby et al., 2015, pp. 102–103).55
Absent intelligent counsel advising otherwise, arbitration clauses designed by or resembling those used by leading institutions may be the most sensible drafting approach, because they have been tested and shown not lead to gaps, ambiguities, inconsistencies or other issues that may arise due to hasty, last-minute negotiation (Born, 2016a, p. 29). Such clauses save time on negotiation, reduce unequal bargaining power, and avoid potential challenges in the future.
How to Communicate When a Legal Dispute Arises
If the parties have the potential to be repeated players who could engage in future contracts or are located in a jurisdiction where pursuing arbitration is perceived as offensive, strategic considerations, including reputation in the industry and/or locale, are likely to affect communication. In either scenario, all previous factors discussed remain applicable.
The parties’ strategic thinking and the process of negotiation often leads to them determining choice of law and choice of seat by selecting the best of each party’s least favored options. Regardless of the cultural background of the parties, one party will rarely relinquish their advantage and agree to a seat and/or choice of law provision that works best for the other party, because it would also function worst for the first party.
A party that decides to pursue an arbitral claim must initiate it in a timely manner and in accordance with all requirements specified in the arbitration agreement, including observing conciliation or mediation first if a multi-tier clause exists. If another party initiates judicial action, the party who wants to pursue arbitration should consider invoking the existence of the arbitration agreement itself so they are not deemed to have waived their right to arbitrate. These are all strategic choices that require careful assessment on a case-by-case basis and effective communication in filling notices in accordance with the arbitration agreement and domestic law on the issue.
It is noteworthy that strategic thinking does not authorize legal violations of professional rules of conduct (Brand, 2019, p. 277).56 In the majority of developed jurisdictions, including the United States, Europe, and certain countries in Asia and the Middle East, domestic laws assure the parties’ right to counsel of their choice, thus prohibiting them from imposing restrictions on representation (e.g., the requirement of admission of counsel to practice in the seat of arbitration) (Born, 2015, pp. 1023, 1033).57 A lawyer advising on transnational transactions may have a duty to disclose information and any relevant legal authority (law or case) that may be detrimental to his or her client in negotiations as well as in court (Brand, 2019, pp. 270–273).58
No mandatory international law governs arbitration. The IBA issued guidelines calling for judges, legislators, governments, international actors, lawyers, and bar associations to obey its ten principles common to legal practice worldwide. These call for the fundamental right to a legal defense; honesty, integrity and fairness; disclosure of conflicts of interest; confidentiality/professional secrecy; protecting the client’s interest; lawyers undertaking; guarding client freedom; property of clients and third parties not involved in the dispute; legal competence; and fees (International Bar Association, 2011). The IBA has also stipulated rules on ethics for international arbitrators. Those rules, although not binding, are considered to set the standard internationally, and counsel should familiarize themselves with them.
A current concern that significantly affects all communication in all stages of international commercial arbitration is cyber-intrusion. This concern is more acute after the legal dispute arises. A survey of the ethical rules governing lawyers shows that, except for Russia, national legislators remain reluctant to extend the duty to incorporate cyber-security-related obligations (Alekhin, Foucard, & Lourie, 2019, p. 21). However, the existence of general duties that can be interpreted to include the duty to protect data in general should encompass such obligations. The parties themselves, as opposed to arbitrators, may not have a duty to keep all parts of arbitration proceedings confidential. Yet there is a general expectation of confidentiality, regardless of the extent to which the proceedings are deemed private, as parties and lawyers expect that they alone will have access to their communications and case strategy, and arbitrators expect that no one else would attempt to view their previous working drafts or overhear their deliberations (Cohen & Morril, 2017, p. 994).
A related consideration is the existence and scope of privilege. Privilege is a legally recognized right to withhold specific testimonial or documentary evidence from a legal proceeding, including the right to prevent another from disclosing such information. It is based on domestic law that protects certain relationships such as attorney–client, husband–wife, clergy–penitent, and doctor–patient (Mosk & Ginsburg, 2013, pp. 346–350, 357).59
The existence of legal privilege, which protects communications between a party and his or her legal counsel, applies to lawyers in practice, in industry, and in government service. Legal privilege, thus, applies generally, despite the scope of such protection being dependent upon the legal tradition of the country (Lew, 2015, p. 349). In civil law jurisdictions, such as in France, the benefits of the privilege rest with the lawyer, and only they can waive the protection of privilege; in common law jurisdictions, the client is the one who can do so (Lew, 2015, p. 349).60 In the former, “confidential information and documents received from, prepared for, and exchanged with the client are considered to be professional secrets” (Lew, 2015, p. 348).61
The privilege against self-incrimination is acknowledged in more than 50 countries, but the scope of its application varies (Mosk & Ginsburg, 2013, p. 359). Civil law jurisdictions do not permit a witness or party to testify against their own interests, which is something common law jurisdictions are more willing to consider recently (Mosk & Ginsburg, 2013, p. 362). Similarly, statements made during settlement discussions may be inadmissible. Most arbitral rules, like those of the ICC and UNCITRAL, do not address testimonial or evidentiary privileges, with the notable exception of the IBA’s Supplementary Rules Governing the Taking of Evidence in Commercial Arbitration (Mosk & Ginsburg, 2013, p. 375).62
A different set of concerns applies to the taking of evidence, and efforts reconciling common law and civil law traditions are relevant and often applicable, although not mandatory (International Bar Association, 2010b). In cross-cultural international commercial arbitration practice, practitioners must be particularly mindful when presenting evidence and submissions to tribunals located in countries with different legal traditions. There are codes of practice that need to be obeyed to avoid bias from the arbitral tribunal, at the very least (Strong, 2009, pp. 4–5).63 Accordingly, legal counsel has an essential role in communication, ensuring the effectiveness of the international commercial arbitration system is fair and expedient. Advocates in international commercial arbitration are more than mere representatives of the interests of their clients; “They are actors who shape the future of the transnational space in which they operate and should bear responsibility for it” (Caron, Schill, Smutny, & Triantafilou, 2017, p. 7).
Trending Topics in International Commercial Arbitration
The consequences of the recently signed Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters remain to be seen for international commercial arbitration (The Hague Convention, 2019).64 This is because one of international commercial arbitration’s main advantages has been the reciprocity of the enforcement of arbitral agreements and awards under the New York Convention.
Although it facilitates communication among the parties and counsel, the relative informality and flexibility of international commercial arbitration are cited as factors that lead to increasing judicialization in international commercial arbitration proceedings, thus increasing the likelihood of delays, higher costs, and greater workloads (Menon, 2015, p. 25). Other criticisms based on the judicialization of international arbitration emphasize its hierarchical relationship that lacks transparency, and even impartiality (e.g., when an arbitrator is unilaterally appointed), casting a cloud on the legitimacy of international arbitration (Sweet & Grisel, 2017, pp. 223–227).
Another topic of early-21st-century discussion is the use of artificial intelligence, which raises concerns about profiling arbitrators and increases the likelihood of violations involving parties’ communications. Empirical work on international commercial arbitration continues to increase and may benefit from the use of artificial intelligence and its data-driven approach. Empirical findings, including predictive analyses, are particularly relevant for communication in the international commercial arbitration setting because they influence choices such as the seat of arbitration, the arbitral institution used, and which type of arbitrator should be considered.
Communication and the use of empirical evidence in international commercial arbitration, and international arbitration overall, have demonstrated the lack of diversity in the field. The international arbitration community is grappling with its lack of diversity in the gender and nationality of arbitrators and counsel. Recent data shows the primary actors in international arbitration are consistently men from North America and Europe, although the Cold War divide has disappeared (Franck, Freda, Lavin, Lehmann, & van Aaken, 2015, p. 503).65 The lack of transparency regarding arbitrator appointments is shown to be a major factor in maintaining disproportionate male representation in international arbitration (Greenwood, 2017, p. 104), so a few international arbitral institutions are changing their policies.66 As empirical research is likely to increase due to the use of artificial intelligence, the diversity and overall performance of parties involved in arbitration proceedings have a higher probability of being discussed and evaluated. Accordingly, future research on communication in international commercial arbitration is promising and may report the closing of the diversity gap.
The author is grateful to Professor Eric M. Kramer, Professor Peter Kutner, Professor Carlos Cesar Borromeu de Andrade, Professor Brian McCall, Andrew Jung, and the distinguished editorial team at the Oxford Research Encyclopedia of Communication. The views presented here are those of the author alone.
Annex I: International Treaties and Databases on International Commercial Arbitration
• For a free database on international awards: International Arbitration Case Law (IACL), which produces summaries of recently released arbitral awards, including investment arbitration, see http://www.transnational-dispute-management.com/casere ports.asp.
• For a free database on the New York Convention, including its history, different versions, authoritative final versions in different languages, and court decisions, see New York Convention.
• For free access to cases on the New York Convention and additional UNCITRAL documents, the Case Law on UNCITRAL Texts (CLOUT) website is hosted by the United Nations.
• For a public database providing information on published and unpublished awards and all features of arbitrator decision making, see Arbitrator Intelligence.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, June 10, 1958) 330 U.N.T.S. 3, entered into force June 7, 1959 (New York Convention). See online.
European Convention on International Commercial Arbitration of 1961—UN Treaty Series, Vol. 484, p. 364, N. 7041.
The Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (concluded July 2, 2019). See Constant Contact.
UNCITRAL Model Law on International Commercial Arbitration of 21 June 1985 (as revised by the 2010 Amendments).
Annex II: International Arbitration Institutions
• International Center for Dispute Resolution of the American Arbitration Association, with offices in Mexico, Ireland, Bahrain, and Singapore.
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(1.) Mediation is defined as, “A process whereby a mediator, i.e., a neutral third party, works with the parties to resolve their dispute by agreement, rather than imposing a solution. It is sometimes known as conciliation.” See Lew et al. (2003), p. 13. The authors note that the methodological distinctions in mediation and conciliation caused them to be viewed as different processes under public international law, with a more proactive facilitator in mediation and the third party exerting limited interference in conciliation (pp. 13–14).
(2.) These exceptions vary according to national laws and whether the international arbitration proceedings involve an institution. For example, the International Chamber of Commerce (ICC) requires the ICC Court to check the formal requirements of every award, and authorizes a limited review restricted to correction, interpretation, and remission, as determined in Articles 34 and 36 of the 2017 ICC Rules of Arbitration, respectively. Articles 37 and 38 of the United Nations Commission on International Trade Law—UNCITRAL Arbitration Rules (as revised in 2010) allow for review of interpretation and minor corrections of the award.
(3.) Most notable is the Convention on the Settlement of Disputes between States and Nationals of Other States (ICSID Convention), a specialized forum for the resolution of investment disputes. The ICSID Convention, a treaty designed by the World Bank, grants legal standing to individuals, does not require plaintiffs to exhaust local remedies before pursuing an investment claim, and imposes mandatory compliance on any contracting state with an ICSID award, according to Article 53 of the Convention. However, the ICSID text is famously silent on the definition of foreign investment.
(4.) For a discussion on the brevity of the text, the goal of uniformity, and related harmonization across domestic laws regarding recognition and enforcement of arbitration awards and agreements under the New York Convention, see Born (2015), pp. 34–35; Hereinafter referred to as the New York Convention.
(5.) New York Convention, Articles I and II, respectively.
(6.) While an arbitration clause may be concluded orally or in writing, Articles II and IV of the New York Convention require a written contract for foreign enforcement of the award.
(7.) Separability is specifically mentioned in the UNCITRAL Rules, art. 23(1), which is directed at parties in a legal dispute; and the UNCITRAL Model Law, art. 16(1) which applies to states who want to adopt provisions of the Model Law in their domestic legislation. Brazil, China, France, India, the Netherlands, and the United States have their laws on arbitration determining the autonomy of the arbitration agreement from the contract aims protecting. Severability is also explicitly addressed in institutional rules, such as in the London Court of International Arbitration Rules, art. 23(2); “The arbitration clause in a contract is considered to be separated from the main contract of which it forms part and, as such, survives the termination of that contract. Indeed, it would be entirely self-defeating if a breach of contract or a claim that the contract was voidable were sufficient to terminate the arbitration clause as well; this is one of the situations in which the arbitration clause is most needed” Blackaby et al. (2015), p. 104.
(8.) Countries have different admission requirements for arbitration-related matters for purely domestic legal disputes, such as employment law, consumer law, and others potentially subject to dirigisme (government interference in the economic sphere, generally).
(9.) For instance: Article 1(1) of the UNCITRAL Model Law restricts its application to “international commercial arbitration,” as per Article 1(3).
(10.) The United Nations Commission on International Trade Law issued the UNCITRAL Model Law on International Commercial Arbitration in 1985, with amendments adopted in 2006, providing countries with a set of rules that can be transposed to their domestic legislation.
(11.) The article also discusses mixed legal traditions that reconcile features of civil and common law, such as Quebec, Scotland, South Africa, and Sri Lanka, and Israel, which also integrates Talmudic law.
(12.) The German and Scandinavian legal traditions are often perceived as more efficient than the French.
(13.) See UNCITRAL Model Law website for Croatia and a list of other countries that have been influenced by such Model Law.
(14.) Canada, China, and the United States are examples of jurisdictions with long-arm statutes.
(15.) “It is advisable to include a confidentiality provision in the arbitration agreement because the general confidentiality clause in a contract covers only confidential information, but not the fact that there is a dispute, the general arbitration proceeding, the briefs, the witness statements, the oral statements and the award.”
(16.) The New York Convention, arts. II(1) and V(2)(a), determine that an arbitration agreement and an arbitral award, respectively, need not to be recognized if the matter submitted is not capable of settlement by arbitration (emphasis added).
(17.) This seminal work frames international business as so nuanced and specialized that his proposed variables are crucial to avoid miscommunication.
(18.) For an interesting account of how certain cultures do not mask smells and take social clues from it; while masking is the rule in the Americas, northern Europe, Japan, Australia, New Zealand. Also shows how both parties may be unaware of such differences.
(19.) In international commercial arbitration, the law applicable to the arbitration agreement may be different from the law of the underlying contract it protects. Choice of law in international transactions is subject to different rules across jurisdictions.
(20.) Culture is subject to multiple definitions and criticisms. This work uses the term to refer to “historically evolved values, attitudes and meanings that are learned and shared by the members of a given community, and which influence their material and non-material way of life. Members of the community learn these shared characteristics through different stages of the socialization process within institutions such as family, religion, formal education and society as a whole” (Tayeb, 2003).
(21.) Each classification has its own literature, which is beyond the scope of this ORE article to outline. A study involving law students in the United States demonstrates they associate prestigious legal positions such as judges and partners in law firms with male workers in Levinson and Young (2010).
(22.) Respecting differences is key as parochialism, after all, is based on the notion that similarity is more desirable than difference.
(23.) Despite belonging to the same language, legal terms such as “domicile” have different meanings in U.S. jurisdictions and English law.
(24.) “In German business culture, for instance, a bid is viewed as binding, whereas in the Netherlands it is viewed as a starting point for negotiations. The Dutch apparently meet in order to discuss ad infinitum, whereas the Germans meet in order to reach a decision. Culture and communication styles, it seems, override the shared means of communication.”
(25.) Countries with lower power distance include Sweden, Norway, Germany, Israel, and Scandinavia. Denmark and Finland are mentioned at Hofstede et al. (2010, p. 60) and so is the United States. Countries with high power distance indexes include most Asian countries, Eastern European countries (including Slovakia and Russia), Latin American countries, Arabic-speaking countries, and African countries (p. 333).
(26.) To a certain extent, this holds true in Germany as well.
(27.) In addition, relationships and connections (called guanxi in China) dominate the Asian business environment.
(28.) Strategic thinking is defined as determining a particular course of action in relation to the behavior of the counterpart or counterparts involved. “To illustrate, a player in American football often runs around the right side as a decoy to fool the other team while the player carrying the ball runs around the left side. In contrast, a mountain climber never starts up the south slope as a decoy to fool the mountain while the main party ascends the north slope. Football is strategic and mountain climbing is nonstrategic.”
(29.) It should be noted that the party writing the first draft discloses significant information about their preferences upfront, which might not be ideal in every international transaction scenario.
(30.) Drafting provisions on international business arbitration agreements has also been compared to Sisyphean efforts, as once a particular clause is modified, other clauses require revision.
(31.) For example, in the United States, the diversity of citizenship provision permits residents of different states may litigate their claims in district courts rather than a state court, as if the latter were to adjudicate the claim, the court may favor its own resident, regardless of the strength of the resident’s complaint. 28 U.S.C. §1332(a)(1).
(32.) Conflict of law is the terminology commonly used in common law jurisdictions. In civil law jurisdictions, such rules often appear in the Civil Code or the Code of Civil Procedure, under articles addressing issues involving private international law.
(33.) The underlying rationale for the approach pursued is the search for the interests of the parties (what is of value to them)—not necessarily their specific position on a negotiating clause.
(34.) A negotiauction is designed to “capture the murky middle ground that falls between pure one-on-one negotiations and pure Sotheby’s-style auctions. . . . Negotiauction is the commonplace situation in which negotiators are fighting on two fronts—across the table for sure, but also on the same side of the table, with known, unknown, or possible competitors.”
(35.) New York Convention, arts. II(1), II(3).
(36.) New York Convention, art. V(2)(a).
(37.) New York Convention, arts. V(2)(a) and V(2)(b), respectively.
(38.) New York Convention, art. V(1)(d).
(39.) New York Convention, arts. V(1)(a) and V(1)(c).
(41.) In this example, the defined terms are “Parties” and “Agreement.”
(43.) Emphasizing that parties should avoid having domestic courts appoint arbitrators.
(44.) For a non-exhaustive list of popular international arbitration institutions divided by continent, see the section “Annex II” of the ORE COM article.
(45.) Also noting that the law applicable to the seat is the arbitration legislation of that jurisdiction, not its civil procedure legislation.
(47.) New York Convention, arts. I(1) and II.
(48.) Brazil ratified the New York Convention in 2002, and a recent study shows its enforcement of awards is aligned with the spirit of the New York Convention.
(49.) International standard practices in the field of international commercial arbitration are the guidelines published by the International Bar Association (IBA).
(50.) Noting this is the opposite of juridical nationalism.
(51.) Arbitrator Intelligence, available online, is a global aggregator that collects and analyzes information on international arbitrator decision making in order to improve arbitrator selection and case strategy.
(52.) Certain institutions require the language of the arbitration to be the one used institution’s location in the absence of specification by the parties, such as the CIETAC Rules, art. 81, requiring Chinese, and ICAC Rules, § 23, requiring Russian.
(53.) Most institutional arbitration rules have provisions for default parties.
(54.) Such clauses are called multi-tier clauses; if mediation or conciliation fails, the parties are authorized to pursue international arbitration.
(55.) Russia and France are examples of uncertain enforcement of unilateral options.
(56.) Ultimately, the conduct of lawyers engaged in transnational practice should comply with the ethical rules of the jurisdiction where they are admitted to practice, the jurisdiction where they engaged in the conduct, and any federal or supranational provision applicable to such professional conduct before a specific agency or institution.
(57.) The Inter-American Convention, art. 3; the IACAC Rules, art. 4; and the 1907 Hague Convention, arts. 62, 70, and 71 guarantee the right of the parties to legal counsel of their choice. Japan and China recently amended their domestic laws to authorize foreigners to participate in international arbitration in their jurisdictions.
(58.) This is the case in the United States, under the Model Rules for Professional Responsibility, which are used as a paradigm for professional conduct domestically and abroad. American Bar Association Center for Professional Responsibility, Model Rules of Professional Conduct (2013). The obligation to disclose adverse authority, based on Rule 3.3 (a)3 in conjunction with para. 1 of the Preamble, applies in negotiation contexts as well as in court, due to a lawyer’s obligation to deal honestly with others, as stated in § 2 of the Preamble.
(59.) Some U.S. jurisdictions have provisions covering accountant–client privilege, which may affect international commercial arbitration.
(60.) Noting that in Germany, also a civil law jurisdiction, the client is in control of such privilege.
(61.) This imposes a significant burden on the lawyer.
(62.) Noting the IBA rules address business-secret privilege, government secrets, and commercial or technical confidentiality.
(63.) A U.S. attorney “who objects, court room style, in an arbitration will not be ejected from the hearing, but will look like a novice. Conversely, a civil law lawyer who fails to cross-examine a witness (because that procedure is foreign to civil law trials) has lost an opportunity to advance his or her case.”
(64.) The Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, which was concluded in July 2, 2019, is not yet in force.
(65.) The results show 76.5% of counsel and 84.8% of arbitrators were from high-income countries, and the proportion of women arbitrators was limited to 17.6%. This corroborates the perception of international arbitration as a “white male game.”