Alternatives in international dispute resolution*
*This article is a speech delivered by the author at the International Commercial Arbitration conference (Almaty, 11th June 2002)
Sigvard Jarvin, Member of the Bars of Sweden and Paris, Jones, Day, Reavis & Pogue (Paris)
A commercial dispute can be resolved in one of two ways: either through jurisdictional processes or through non-jurisdictional processes. What do these scholarly terms mean in practice?
Jurisdictional processes simply refer to State court litigation and arbitration. Both the courts and arbitral tribunals have the power to render a decision which is not only binding upon the parties to a dispute, but which can also be enforced against the losing party.
Non-jurisdictional processes involve having recourse to alternative dispute resolution (ADR) schemes, such as conciliation or mediation. In contrast to State courts’ decisions and arbitral tribunals’ awards, the settlement, if any, that emerges from conciliation or mediation proceedings is not enforceable upon the parties. The parties will or will not comply with the contents of such a settlement, according to the extent of their goodwill. They may bind themselves contractually to a conciliator’s recommendation. Even so, should one of the parties not be willing to act in accordance with the conciliator’s recommendation, which it had previously agreed to comply with, the other party will need to bring the case before a court or an arbitral tribunal.
II. Judicial proceedings
It sometimes happens that the parties do not stipulate any provision in their contract regarding the settlement of possible disputes. If this is the case, it will be necessary, once the dispute arises, to determine which tribunal has jurisdiction, either by applying the relevant conflict-of-law rules on judicial jurisdiction, or by examining possible applicable bilateral or multilateral treaties. In these circumstances, it may be that a State court declines jurisdiction and, on the basis of its conflict-of-law rules, refers the matter to the State court of another country after the defendant party has raised a plea for lack of jurisdiction of the first tribunal. This will not only considerably delay the conduct of the judicial proceedings, but will also involve major costs related to the setting in motion of successive proceedings before tribunals of different countries.
Parties involved in a dispute before a State court generally have the possibility of seeking from this authority some provisional or conservatory measures.
A provisional or conservatory measure may be needed, for instance, to prevent a party from hiding, or transferring out of the reach of the jurisdiction in question, goods which are the subject of the dispute, or assets that would enable a party to obtain satisfaction if it were to win its case.
III. International commercial arbitration
Arbitration is a binding means of settling commercial disputes. Unlike State courts, there do not exist permanent arbitral tribunals for business disputes, where the same arbitrators are sitting for several cases. Arbitration is a private method of settling disputes, based on the parties’ agreement. The general rule is ‘no agreement to arbitrate, no arbitration’. Apart from a few exceptions, parties must agree by contract to resort to this type of proceedings, and either determine in detail the rules governing the procedure (appointment of arbitrators, etc.), or refer to existing arbitration rules under the administration of an arbitral institution. There exists, in the first instance, what is referred to as ad hoc arbitration - where parties determine for themselves, without the assistance of an arbitral institution, how the arbitration will be conducted. In the second instance, there is institutional arbitration (also referred to as administered arbitration) -where the arbitration process is managed with the help of an arbitral institution.
In institutional arbitration, the parties call upon an arbitration centre, or an arbitral institution that they will have chosen, to administer the proceedings in accordance with the institution’s arbitration rules.
The extent of administration of the arbitration process varies from one institution to another. Generally, the arbitral institution administers the arbitral process partially, and limits its assistance to the constitution of the arbitral tribunal (appointment of arbitrators), taking into account the desiderata of the parties, as well as its own arbitration rules.
Institutional arbitration may also be fully administered. In this case, the institution not only takes care of receiving the request for arbitration for notification to the other party, but also actually constitutes the arbitral tribunal, fixes an advance on costs and, as the case may be, fixes the place of arbitration. Once the advance on costs has been paid, the arbitration institution sends the file to the arbitrators and supervises the conduct of the proceedings until the rendering of the award. It thereby keeps control over the proceedings and will resolve certain difficulties, such as deciding on the replacement of biased arbitrators. It sometimes even ensures that the content of the award is acceptable, with regard to its form, and may draw the arbitrators’ attention to certain points regarding the merits of the case. It looks after notification of the award to the parties, after having fixed the costs of the arbitration, and it ensures that the arbitrators are paid. Finally, the arbitration institution ensures that the different steps of the proceedings have been accomplished within the time limits prescribed by its arbitration rules.
IV. Non-jurisdictional means of settling disputes: alternative dispute resolution
Conciliation. A conciliation procedure aims at bringing the parties together before a third person whom they have chosen for the purpose of settling their dispute. Where it is successful, the settlement agreement is recorded in conciliation minutes signed by the parties and the conciliator.
As is also the case with arbitration, conciliation proceedings cannot be set in motion without the agreement of both parties. Such agreement can be expressed by a clause in the contract or, subsequently, by a conciliation agreement, which may be agreed tacitly or in written form.
The proposals or recommendations made by the conciliator, after the instruction of the matter, have no binding effect; the parties remain free to apply or reject them. However, they may transmute these proposals in a signed contract or in a binding arbitration award agreed by the parties.
Mediation. What has been written above about conciliation can also apply mutatis mutandis to mediation. It is considered by some that although the duty of the conciliator is generally to give advice, either orally or in writing, the role of the mediator is more to persuade the parties in order that they find an amicable solution to their dispute.
Mini-trial. The term ‘mini-trial’ should not be understood as referring to a summary or abridged procedure. It is not the designation for a jurisdictional procedure but an amicable way of resolving disputes. It is a simulated procedure. Mini-trials are frequently used in the United States of America, especially in international business disputes, in a manner that complements rather than competes with arbitration.
The basic idea is to remit the dispute into the hands of top executive representatives of the parties after the latter have been briefed by the exchange of documents and observations that are part of the judicial phase. A mini-trial thus aims at transforming a legal dispute into a question of commercial policy.
Dispute review board and Dispute adjudication board (DRB/DAB)
This method of alternative dispute resolution, first tried successfully in the 1980s in Central America, is now regularly used in respect of large international construction and infrastructure contracts. These contracts provide for the appointment of a panel of experts, generally construction practitioners (engineers, lawyers, economists), either at the time of signature or in the course of the execution of the contract.
DRB/DABs typically follow a project from beginning to end (through site visits, study of monthly reports, exchanges of correspondence, miscellaneous reports, etc.). This is so that they are able, upon the request of a contracting party, to react promptly and knowledgeably and, if necessary, to issue an opinion, recommendation or decision in written form. DRB/DAB experts are usually paid monthly or, for on-site interventions, by the hour.
Once the panel of experts has handed down its opinion, decision or recommendation, each of the parties indicates, generally within a fixed time limit, whether or not it accepts the decision or recommendation. If the decision is not accepted, recourse to the jurisdictional procedure (before a State court or an arbitral tribunal) remains possible.
V. Choice of appropriate method
Having reviewed the various methods by which disputes may be prevented or resolved, the actual choice of the most appropriate method still has to be made.
Arbitration or State courts?
In international arbitration the rule of party autonomy prevails. Parties are at liberty to organize their proceedings by reference to established arbitration rules, or to draft their own rules. They may choose their arbitrator, fix time limits or have them fixed by a third party. The decision is, in principle, final, as to the merits. Opportunities to have it set aside are generally limited to fundamental procedural flaws. Like judges, arbitrators have a duty of independence. But, more so than judges, arbitrators may be chosen for a given case according to their specific professional and technical qualifications, as well as their availability. Moreover, the confidentiality that applies to arbitration is generally a guarantee of greater serenity during the proceedings than with a State court, where the hearings are public.
There is, however, the other side of the coin: parties do not pay judges, but they do bear all the fees and expenses of arbitrators, as well as the fees of the arbitration institution administering the case. Arbitrators do not, to the same extent as State courts, have the power to order injunctive relief or various other provisional measures such as the seizure of property, or the calling of witnesses or third parties who do not wish to participate in the proceedings. In some countries, courts do have a vast experience in certain specialized fields (admiralty, banking or patent disputes, etc.). With the development of regional integration, commercial court decisions can quickly be enforced between certain countries. This is the case in Western Europe through the 1968 Brussels Convention (amended several times), as well as in 16 African countries that are part of the Organization for the Harmonization of Business Law in Africa (OHADA).
Therefore, although arbitration may be the generally recommended method for the resolution of international commercial disputes, recourse to State courts may also be a valid option, depending on the circumstances.
Arbitration or ADR? In arbitration, the decision rendered is final and binding on the parties. It is subject to judicial recognition and may be enforced against a losing party that does not honour the terms of the arbitral award.
As regards ADR methods, their efficiency depends exclusively on the goodwill of the parties, who are free to comply or not with the recommendations or decisions rendered by the conciliator or the mediator. These recommendations are not equivalent to a court judgement and cannot be recognized as such. Consequently, before a State court a party cannot seek enforcement of a mediation or conciliation recommendation, or of an agreed settlement.
Combining arbitration with ADR. Several contracts envisage a two-tier approach: as a first step, recourse to an ADR method and, as a second step in case the ADR process is not successful, recourse to arbitration proceedings.
For contracting parties involved in a long-term venture, it may be crucial for them to maintain a healthy relationship even when a dispute arises between them, in order that they may preserve their future business dealings. In these circumstances, an attempt at an amicable settlement of their dispute is essential.
To be continued in the next issue
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Alternatives in international dispute resolution* Sigvard Jarvin