International Commercial Arbitration is undoubtedly the major system for resolving disputes between states, investors-states and corporation-corporations and every other type of parties on the international scale on international commerce and trade issues. International Commercial Arbitration in factual terms is like a compromise between common laws and civil laws but is more of a compromise between two parties in a contract.
Also referred to as investment treaties, International commercial arbitration agreements help parties to resolve conflicting interests without the influence of judicial bodies such as the national courts.
International Commercial arbitration has proven to be one of the most important parts of resolving global disputes, and its operation is expressed in the New York Convention established in 1958. This convention made it possible for International commercial Arbitration to become enforceable in almost all countries signed into it.
While the New York Convention has proven to be a very effective guideline for international commercial arbitration treaties, it also has a couple of limitations that extends to International commercial Arbitration. These limitations are known as the pitfalls of international commercial Arbitration.
Pitfalls in International Commercial Arbitration
The obvious truth in international commercial Arbitration is that why it seems to be a great way for a party to protect its right against a host state or against a defendant party that has the asset in its own state, it does have some pitfalls. While Pitfalls in International Commercial Arbitration is not exactly evident, they exist and can cause a lot of damage to a claimant’s position and render its perceived advantage useless.
As it has already been outlined by the New York Convention, there are several areas where International Commercial Arbitration may fall short, and Arbitration cannot be used to settle a dispute. This section will throw more light into these pitfalls to help parties avoid becoming victims when setting up an International Commercial Arbitration contract.
Some of the International Commercial Arbitration pitfalls could be self-inflicted or could be due to obvious limitations and their prevalence in a state or jurisdiction. The list ir not exhaustive but actually considers some of the most apparent that come with International Commercial Arbitration and setting up a contract.
International Commercial Arbitration Pitfalls
Unforgivable mistakes in the contract process
This is not necessarily a pitfall caused by the nature of International Commercial arbitration, it is undoubtedly very costly and could render a claimant right useless. When signing international commercial arbitration treaties, most parties tend to do so as an afterthought and do not pay as much attention as they should to it. They almost feel like the possibility of dispute is extremely small and almost non-existent, so they do not settle down to draft a commercial treaty that protects them in every way.
In many instances, parties (especially claimants) have gone on to lose their right to make claims due to poor scrutiny of the contract they signed. International commercial arbitration contracts are extremely sensitive, and once there is a mix-up, even if it is a compromising sentence, the defendant may be able to seek relief through it, making the contract fall short of its expected role.
Does not consider future disputes except outlined in the contract
One of the pitfalls of commercial Arbitration is that when included in a contract, it will most likely only be sufficient enough to handle only a single line of interest or just one conflict. Once the claimant is not aware of this flop and disputes arise, they may become victims of a treaty that was supposed to protect their interest.
Apart from the type of commercial arbitration treaty reached, another shortcoming is the fact that International commercial Arbitration is only effective for handling only a single dispute. This means that, unless it is explicitly stated, a treaty or contract covers future disputes related to the deal.
It is limited only to countries that are a signatory of the New York Convention
While International commercial Arbitration is embedded in the New York Convention and on paper is expected to function in all jurisdictions, the truth is that this is not always the case. International Commercial Arbitration can only be successfully enforced in countries that are a signatory of the New York Convention.
Therefore, if a party has an issue with a host state or a corporate entity in a host state that is not a signatory of the convention, then the treaty or contract reached with that country will not be enforceable, and if the party assets are in the host state, then the claimant will be left to the mercy of the State National courts instead. Historically, the National courts of host states have been slightly biased towards the host state against investors claiming compensation.
Also, even in countries that are signatory to the New York Convention, the arbitration agreement must be expressed in written form as no other form of expression will be accepted. Also the all parties must agree to the written contract and sign it for it to become effective.
Limitations of enforcement
While it is mostly stated that International Commercial arbitration is enforceable in every area, in reality, this is not the case, and this is expressed in the New York Convention. The NYC only applies to the state where the award is enforced on international grounds in international commercial dispute resolution. This means that if the state where the enforcement is being sought is different from where the award is issued, then it can apply to the other state as well but not for domestic cases of the state itself as it is domestic.
Avoiding the pitfalls of Arbitration takes a level of expertise on the laws that guides it. In most cases, you would need a Professional arbitrator or top arbitrator team to help you understand the full workings to help you get the best out of it.
Even if you have a current dispute and you have a treaty clause, you would still need an expert firm to help you get the best out of the case.
Rattsakuten is a top Arbitral firm that has expert arbitrators in its ranks that help clients access International Commercial Arbitration pitfalls and how to navigate through them and get awards enforced in their favor. You can reach the firm for inquiries and more information.
Rattsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals.