ChapterTenClaimsandArbitration10.1Claims10.2Arbitration

10.1Claims

10.1.1Introduction

Atrade-relatedclaimisalegaldemandorassertionbyonepartyforcompensation,payment,orreimbursementforalossordamageincurredduetothenegligenceorbreachofthecontracttermscommittedbytheotherparty.Thecontentsofacomplaintarenotonlypricereduction,contractavoidanceandcompensationfordamage,butalsoincludediscrepancies,arguments,anddisputes.

Becauseofthewiderangeofpossibleclaims,itisimportanttooutlinewhatclaimsareacceptableunderthecontract,andhowtheclaimsaretobemade.Creatingaclearpathforclaimsisnecessary,particularlyfortheriskmanagementininternationaltrade.Thispathshouldclearlyspecifytheperiodoftimetopresenttheofficialclaim,causesforwhichclaimsaretobebrought,andhowtobringaclaim.Onetypeofclaimsthatcouldtakeanexporterbysurpriseistermedthe“marketclaim”.Thisistheclaimthattheimporterasksfordamagecompensationostensiblyduetoonlyminordiscrepanciesinproductsdeliveredfromthosecontracted,buttherealcauseoftheclaimisadecreaseinthemarketpriceoftheimportedproducts.

Thebuyerinspectsthegoodstoensurethattheyareinaccordancewiththecontractandcleardiscrepanciesarenotfound.Ifanydiscrepancyisfoundorthedeliveredquantityisshortofthecontractedquantity,thebuyershouldnotifytheproblemtothesellerimmediately.Theinspectionandnotificationarethebuyer’sobligation.Ifheneglectsthisprocess,helosestherighttomakelegalclaims.

Itisadvisablethatthebuyerinspectgoodswithinasshortaperiodashecanasfarascircumstancespermit.Ifhefailstosendnotificationwithinareasonableperiodoftimedespiteadiscrepancy,helosestherighttoclaim.

Countlessaspectsofbusinessdealingscanbreakdown,butthemostcommoncausesforclaimsare:

?Anincorrectbill,invoice,orstatement;

?Abillformerchandiseorderedbutneverreceived;

?Deliveryofunorderedmerchandise;

?Deliveryofincorrectmerchandise;

?Deliveryofdamagedordefectivemerchandise;

?Anunusuallydelayeddelivery.

Twoothermorespecializedtypesofclaimsare:

?Arequestforanadjustmentunderaguaranteeorwarranty;

?Arequestforrestitutionunderaninsurancepolicy.

10.1.2BreachofContract

Ifanypartyfailstofulfillthecontractwhollyorpartially,hisactisreferredtoasabreachofthecontract.Normallytherearetwowaystodeterminethenatureofthebreach.Thefirstwayisbasedonthetermsandconditionsofthecontract,andtherearetwotypesofundertakingsenteringintoeverysalescontract.Themoreimportantoneofthetwotypesiscalledaconditionwhichisaclauseassociatedwiththeessenceofthecontract.

Thisclauseactuallygoestotherootofthecontract.Ifonepartybreaksacondition,hewillbreakthefoundationofthecontractandleadstoactionforafundamentalbreachofthecontract.Thelessimportanttypeofundertakingiscalledawarranty.Sinceawarrantydoesnotgototherootofthecontract,theinjuredpartycannotcancelthecontract,butheisentitledtobecompensatedforbreachofwarranty.

Theotherwayisbasedontheconsequenceofthebreach.Onepartybreaksthecontractandmakestheotherpartyunabletoobtainthemainprofit,whichiscalledmaterialbreach.Inthiscase,theinjuredpartyhastherighttocancelthecontract.Meanwhile,hemayaskforcompensationforlosses.Ifonepartybreaksthecontract,butthecaseisnotsoseriousandtheotherpartywillnotloseanymainprofit,thisiscalled“minorbreach”.Inthiscase,theinjuredpartycannotcancelthecontract.However,hemayaskforcompensationforlosses.IntheUnitedNationsConventiononContractsfortheInternationalSaleofGoods,thesetwoundertakingsaretermedasfundamentalbreachandnon-fundamentalbreach.

Ininternationaltrade,disputesariseformanyreasons.Someofthereasonsaresummarizedasfollows:

Asellermaybreachacontractwhen

?Hefailstodeliverthegoods;

?Hefailstomakedeliveryaccordingtoshipmentdatastipulatedinthecontract;

?HedeliversthegoodsthatarenotinaccordancewiththecontractortheL/Cinrespectofquality,specifications,quantityandpacking,etc;

?Hepresentsshippingdocumentsthatareincompleteandinadequate.

Abuyermaybreachacontractwhen

?UnderaL/C,hefailstoopentherelevantL/Caccordingtothestipulatedperiod;

?Hewronglyrefusestoacceptthegoods;

?UnderFOBtermsinthecontract,hefailstodispatchthevessel.

Sometimesbothpartiesmaytakeresponsibilityforbreakingthecontractbecausetheymaymisunderstandormisinterprettheclausesofthecontractthatarenotclearlyordefinitelystipulated,whichiswillgiverisetodisputes.

10.1.3DiscrepancyandClaimClause

Inimportandexportbusiness,claimsregardingqualityandquantityorweightareverycommon,eventhoughproperinspectionofthegoodshasbeenconductedbydesignatedsurveyorsorpublicinspectionbureaus.Thegoodsmayhavebeendamagedorlostduringtransit.Incasethegoodsdeliveredareinconsistentwiththecontractstipulations,somepreventativeclausesareusuallyincludedinacontractsuchastoleranceclause,moreorlessclause,andcommodityinspectionclause.Anyway,itisnecessarytoincludeadiscrepancyandclaimclauseintheinternationalcontracts.

Discrepancyandclaimclausealwaysinclude,besidesstipulatingthatifanypartymakesabreachofcontract,theotherpartyisentitledtolodgeaclaimagainstthepartyinbreach,otheraspectsconcerningproofspresentedwhenlodgingaclaimandeffectiveperiodforfilingaclaim,specificpenalties,etc.

1.Proofs

Clauseinthisrespectstipulatestherelevantproofstobepresented,andtheproofsshouldbecompleteandclear,andtheauthorityshouldbecompetentforissuingtherelevantcertificate.Withoutproofs,claimscanberefusedbytheotherparty.Proofsincludelegalproof,whichreferstothesalescontractandtherelevantgoverninglawsandregulationsandfactproofwhichreferstothefactsandtherelevantwrittenevidencesinrespectofthebreach.

2.PeriodforClaim

Periodforclaimreferstotheeffectiveperiodinwhichtheclaimantcanmakeaclaimagainstthepartyinbreach.Claimsbeyondtheagreedeffectiveperiodcanberefusedbythepartyinbreach.Therefore,theclaimperiodshouldbereasonablyfixed.Generally,aperiodthatistoolongmayputthesellerunderheavyresponsibilityandaperiodthatistooshortmaymakeitimpossibleforthebuyertofileaclaim.Inaddition,adetailedstipulationinrespectofthestartingdateformakingaclaimshouldbeincludedintheclause.

3.Penalty

Clauseinrespectofpenaltyinthecontractshouldstipulatethatanypartywhofailstoperformthecontractshallpayanagreedamountasapenaltyforcompensatingtheotherforthedamage.Apenaltyclauseisfixedwhenthesellerfailstomaketimelydelivery;thebuyerfailstoopentheL/Corthebuyerfailstomakedeliveryontime,andthepenaltyceilingisalsoincludedinthecontract.

Inforeigntrade,thesalescontractclausesprovidealegalbasisfordeterminingtherightsandobligationsofsellersandbuyers.Abreachofacontractariseswhereanypartyofacontractdoesnotabidebythestipulationsofthecontract.Sincethesalescontracthasalegalbindingforceuponthecontractingparties,anypartywhoviolatedthecontractshallbelegallyheldresponsibleforthebreach,andtheinjuredpartycanexercisehisrighttoclaimdamageagainsttheoppositeside.

10.1.4LegalAspectsofMarketingClaims

Thedevelopmentandintroductionofnewproductsmustconformtolawsthatregulateunitsofmeasurement,qualityoringredientrequirements,safetyorpollutionrestrictionsandindustrystandards.Thismayforcefirmstomodifytheirproductsineverynationalmarkettomeetvarying,somemaybetotallyopposite,legalrules.Labelingandbrandingalsofacemanylawsandregulations.Productliabilityisyetanotherareaofconcern:thedifferencesininterpretingimpliedandexplicitwarrantiesandproductreturnpoliciesarespecialareasofconcerntointernationalfirms.

Theuseofspecifictermswhicharenotboundtoonecultureismostimportantfortheinternationalfirmwhenwritingacontractforbusinessinaforeignmarket.Considertheproblemsthatmightbecausedbytermssuchas“premium”,“first-ratequality”and“commercialgrade”whenadifferentcountry’sculturalandlegalperspectivesareusedtointerpretsuchterms.

Conflictscanalsoarisewhenunitsofmeasurementsuchasweightandlengtharenotsufficientlyclear.Standardcontractsusedindomesticmarketsareofteninadequateininternationalmarketsbecausetheymaketoomanyassumptionsabouttheinterpretationofterminology,e.g.garmentsizesassmall,mediumorlarge.Anotherexamplethatcausedconsiderabledifficultyforabread-mixexportertotheUnitedStatesisliquidmeasureinstructionsbasedontheImperialmeasureofthepint;intheUKapintcontains20fluidouncesofliquid,whereasintheUnitedStatesitcontains16fluidounces.AstheUSpintissmaller,instructionstoaddacertainquantityofliquidbasedontheImperialpintmeasurecausedfailureinfoodpreparation.

Promotionisanotherareaofmarketingstrategywheretheimpactoflegalrulesisparticularlycontentious.InGermany,forexample,advertisementscannotclaimthatthefirm’sproductsarethe“best”sincethatisinterpretedasviolatingalawthatforbidsdisparagingcompetitors,whereassuchpracticehasbeenquitecommonintheUnitedStatesbutisnowonthewane.InAustria,premiumofferstoconsumerscomeunderthediscountlawwhichprohibitsanycashreductionsthatgivepreferentialtreatmenttodifferentgroupsofcustomers.

InFrance,itisillegaltoofferacustomeragiftorpremiumconditionalonthepurchaseofanotherproduct.Furthermore,amanufacturerorretailercannotofferproductsthataredifferentfromthekindregularlyoffered.Forexample,adetergentmanufacturercannotofferclothingorcookingutensils.Thetypicalpremiumsorprizesofferedbycerealmanufacturerswouldbecompletelyillegalunderthislaw.Theidiosyncraticnatureoftheselawsandregulationscontinuestoprovideconcernamongfirmsactiveininternationalmarkets.

10.1.5ResolutionofTradeClaims

Businessrelationshipsarelargelyamatterofcontractuallinksbetweenthebuyerandtheseller.Allcontractualarrangementsmustbemutuallybeneficial,otherwise,businessrelationshipwillcease.Thebuyermustreceivegoodsorservicesofthetypeorthequalityheanticipated;thesellermustreceivethepriceofthegoodsorpaymentsfortheservice.Failuretoachieveeitheroftheseaimswillleadtoclaims.

Claimsshouldbemadeinarestrainedandtactfulwaysothatfuturebusinessrelationshipsarenotjeopardized.Areferencetoanearliercourseofbusinessthathasbeenuntroubledandmutuallybeneficialwilloftenleadtoamoregenerousconsiderationofthecomplaintandwillarouseinthesupplier’sconcernforthepreservationofthecustomer’sgoodwill.Theredressofthegrievanceshouldberequestedfirmly.Mostreputablefirmswilloftheirownaccordproposeanacceptablesolutiontotheclaim,whichmayincludesomecompensationforthetroubleandinconvenience.Abusivelanguageshouldneverbeused,ofcourse.

Tradeclaimsaresolvedeitheramicablybypartiesorbytheinterventionofathirdparty.Theformersolutionsaremadebyawaiverofclaim,amicablesettlementorcompromise.Whenthecontractingpartygetslossduetobreachofcontractcommittedbytheotherparty,thedamagedpartydoesnotexercisetherighttoclaim,orsimplygivesuptheclaim,meaningthatthedamagedpartywillassumetheincurredlossbyhimself.Anamicablesettlementorcompromiseisasolutionfoundthroughcompromisebyindependentnegotiationandagreement.

Asasolutionbytheinterventionofathirdparty,talkscouldbegroupedintointercessionorrecommendation,conciliationormediation,andarbitrationandlitigation:

Inthecaseofintercessionorrecommendation,athirdpartyhasintervenedinthedisputeaccordingtotherequestofoneorbothpartiesinordertosuggestsolutionsoradvicetodetermineafairandunbiasedcompromise;Incaseofconciliationormediation,anunbiasedconciliatorisselectedaccordingtoamutualdecision,andthisthirdpartysuggestsacompromise.

Ifbothpartiesagreetothecompromise,theclaimisresolved;Incaseofarbitration,accordingtoamutualarbitralagreement,afairarbitrator(notbylegalaction)isappointedandanarbitraltribunaltakesplace.Then,thearbitralawardissubmittedtobothpartiesunconditionally.Thedecisionisirrevocableandnon-negotiable.Approvalandenforcementofforeignarbitrationaregenerallyrecognizedamongthecountries.Incaseoflitigation,thedisputeisruledbyajudge,whichresolvestheclaimaccordingtotheconcernedcountry’slawandjudicialsystem.

Outofthedisputeresolution,thesimplestsolutiontoacontractdisputeistocontactandnegotiatewiththeotherparty.Withpatience,understanding,andflexibility,onecanoftensolveconflictstothesatisfactionofbothsides.If,however,negotiationsfailandthesuminvolvedislargeenoughtowarranttheeffort,acompanyshouldobtaintheassistanceandadviceofitslegalcounselandotherqualifiedexperts.Ifbothpartiescanagreetotaketheirdisputetoanarbitrationinstitute,thisstepispreferabletolegalactionbecausearbitrationisoftenfasterandlesscostly.

Particularly,inAsianareaslikeJapanandKorea,dissatisfiedpartiesdonotliketovisitthecourtforlitigationandtherefore,sometimes,theywouldratherliketoassumethedamagethantobringthelegalactiontothecourt,whichcomesfromtheculturalfeatureofthisarea.

Insuchcultures,arbitrationmayprove“a‘face-saving’approachtodisputeresolution.”Fromamorepracticalperspective,litigationisanexpensiveprocesslikelytopermanentlydamagethebusinessrelationshipandisinherentlyunpredictableastoresult.Internationallitigationisoftenundulydelayedbecauseofalackofuniformityinproceduralrules.Forexample,theliberalizednatureoftheUnitedStatesinvestigationrulesoftenmeetswithhostilityinforeigncourts.

10.1.6InternationalLitigation

Disputeresolutionthroughtherecoursetopubliccourtsortribunalsisgenerallytheslowest,mostcostlyandmostconfrontationaloutofthevariousoptionstosolvethedisputes,whichisthereasonwhytheexperiencedtradingcompaniestrytoavoidthisapproachbynegotiatingfortheinclusionofalternativedisputeresolution(ADR)orarbitrationclausesintheircontracts.Itistechnicallydifficultandoftenrequiresspecializedprofessionalcounsel.Inaddition,thereexistsariskofcourtbiaswhenthecourtdecisionhastobeenforcedinthecountryofthepartyhavingthesamenationalityasthestatecourtbeforewhoseenforcementissought.

Withrelationtothejurisdictionreferringtothepropercourtsofthepropercountrywheretheclaimcanbebroughtto,ifacontractissilentonthecountryofthepropercourt,thepartiesinadisputecasemaywanttoinvokethejurisdictionofthenationalcourtswhichmaybefavorableto,orthecourtswhichareconvenientforthem,whichisknownas“forum-shopping”.Inordertoavoidtheseproblems,partiesoftheinternationaltradecontractarerecommendedtoincludeaforumselectionorchoiceofforumclause.

Thepartiesmayfreelychoosethegoverninglawtotheircontractsolongasitisnotcontrarytothepublicpolicyofthecountrywherethelegalactionisbrought.Ifthecontractdoesnotspecifytheapplicablelaw,orifthechoiceoflawisunreasonableorcontrarytopublicpolicy,thenthecourtthathearsthecasewillhavetochoosetheapplicablelaw,accordingtotheprinciplesof“conflictoflaws”.AccordingtothegeneralandbasicrulesofConflictofLaws,thecourtwillprimarilylooktotheplacewherethecontractwasnegotiatedand/orsigned,theplacewhereitistobeperformedandthedomicilesofthepartiesinvolved.

10.2Arbitration

10.2.1DefinitionofArbitration

1.Definition

Bydefinition,arbitrationisaprivate,consensualprocessbywhichthepartiestoadisputesubmittheirdisputetoathirdpartyforafinalandbindingdecision.Arbitrationisamethodofprivatedisputeresolutionwhicharisesfromtheagreementofthepartiesindispute.

Arbitrationisconductedinajudicialmannerandthedecisionofthearbitraltribunalisbindinguponthepartiesandisrecognizedandenforcedbycourts.Inarbitration,thepartiesarethesolesourceofthearbitraltribunal’spowerandtheyhavemuchmorecontrolofthearbitralprocessthanlitigantshaveofjudicialproceedingsinthecourts.

Arbitrationisaformofadjudicationwhichhasitsrootsintheancientworld.Atwhattimeorplaceitwasfirstdecidedtosettledisputesthrougharbitrationislostinhistory,butitisgenerallyassumedthatcommercialarbitrationhasbeenexistingsincethedawnofcommerce.Thelackofpermanentformalcourtsmeantthatdisputeshadtobereferredtoimpartialpersonsonanadhocbasis.Theprocessinvolvedacombinationofconciliationandadjudication.

Thetermarbitrationisusedlooselytoday.Itisusedsometimestorefertowhatareactuallytheprocessesofassessment,valuationortheinquiryofparticularfactualissuesincivilcasesbyrefereesappointedbycourts.Italsoreferstoquasi-legislativeprocessessuchastheAustraliansystemformakingawardsinindustrialrelationsdisputeswhichdeterminewagesandotherconditionsofemploymentofworkers.Indeterminingindustrialdisputes,theIndustrialRelationsCommissionanditsStatecounterpartscanmakedecisionsindisregardofcontractualterms.Inotherwords,thesetribunalscancreatenewrightsandobligationsinplaceofexistingonesinordertosettleanindustrialdispute.

2.DefiningCharacteristics

1)Consent

Theparties’consentprovidestheunderpinningforthepowerofthearbitratorstodecidethedispute.Theparties’consentalsolimitsanarbitrator’spowerbecauseanarbitratorcanonlydecideissueswithinthescopeoftheparties’agreement.Arbitratorsarealsoexpectedtoapplyrules,procedures,andlawschosenbytheparties.Normally,thepartiesexpresstheirconsenttosubmitanyfuturedisputetoarbitrationinawrittenagreementthatisaclauseinthecommercialcontractbetweenthem.Iftheydonothaveanarbitrationclauseintheircontract,however,theycanstillenterintoanagreementafteradisputehasarisen.Thisisknownasasubmissionagreement.

2)Non-GovernmentalDecision-Makers

Arbitratorsareprivatecitizens.Theydonotbelongtoanygovernmenthierarchy.Comparedwithjudges,theywillprobablyweighlessheavilyanyquestionsofpublicpolicyorthepublicinterest,sincetheyseetheirprimaryresponsibilityasdecidingtheonedispute,theywerechosenbythepartiestodecide.Also,unlikesomejudges,arbitratorstendtobeverythoughtfuloftheparties,andconsiderateintheirinteractionswiththem.Arbitratorsarechosenbytheparties,and,ofcourse,theywouldliketobechosenagain.Itisintheirinteresttobeperceivedaseven-tempered,thoughtful,fair-minded,andreasonable.

Arbitratorsdonothavetobelawyers.Insomeindustries,thetechnicalskillsofarchitectsandengineerscausethemtobechosenasarbitrators.Whentherearethreearbitrators,quiteofteneachpartywillchooseonearbitrator,andthethird,whowillbethechair,willbechosenbythetwoparty-appointedarbitrators.Internationalarbitratorsare,however,allexpectedtobeindependentandimpartial.Theycanbechallenged,eitherbeforethearbitralinstitutionoracourt,ifthereisevidencethattheyarenotindependentandimpartial.

3)AFinalandBindingAward

Oneofthereasonspartieschoosetoarbitrateisthatarbitrationresultsinafinalandbindingawardthatgenerallycannotbeappealedtoahigher-levelcourt.Althoughthereareoccasionalopportunitiestoappealinsomejurisdictions,forthemostpart,apartycanchallengeanawardonlyifthereissomedefectintheprocess.Apartycantrytovacatetheawardinthecourtofthecountrywherethearbitrationwasheld(theseatofthearbitration).However,undermostarbitrationlaws,theonlygroundsforsettingasideanawardwillbequitenarrow,suchasadefectintheprocedure,oraninstancewherethearbitratorsexceededtheirpowersanddecidedanissuethatwasnotbeforethem.

Oncethearbitratorsrenderanaward,thelosingpartymayvoluntarilycomplywiththetermsoftheaward.Ifitdoesnot,theprevailingpartywilltrytohavetheawardrecognizedandenforcedbyacourtinajurisdictionwherethelosingpartyhasassets.Intheenforcingcourt,thelosingpartycanalsochallengetheaward,butagain,onlyonverynarrowgrounds.Basically,theawardcannotbechallengedonthemerits,thatis,evenifthearbitratorsmademistakesoflawormistakesoffact,thesearenotgroundsfornon-enforcement,andtheawardwillstillbeenforced.Onceaparty’sawardisrecognizedintheenforcingjurisdiction,itisgenerallyconsideredtohavethesamelegaleffectasacourtjudgmentandcanbeenforcedinthesamewaythatajudgmentwouldbeenforcedinthatjurisdiction.

3.InternationalCommercialArbitration

Whatmakescommercialarbitrationinternational?Thisquestionisimportantbecausethereareinternationalconventionsthatestablishspecialrulesforfacilitatinginternationalcommercialarbitrationandfortherecognitionandenforcementofinternationalarbitralawards.TherearetwomajorconventionsthathavebeenimplementedinAustralia,namely:theConventionontheRecognitionandEnforcementofForeignArbitralAwards(commonlyknownastheNewYorkConvention)andtheUNCITRALModelLawonInternationalCommercialArbitration.

TheNewYorkConventionisrestrictedtotheimpositionofdutiesonStatepartiestorecognizeandenforceforeignarbitralawards.TheUNCITRALModelLawisamoreextensivecode.TheNewYorkConventiondoesnotactuallyusetheterm“international”butappliesitsprovisionsto‘arbitralawardsmadeintheterritoryofaStateotherthantheStatewheretherecognitionandenforcementofsuchawardsare“sought”andto“arbitralawardsnotconsideredasdomesticawardsintheStatewheretheirrecognitionandenforcementaresought”.

Inkeepingwiththisclause,S3oftheInternationalArbitrationActstatesthata“foreignaward”means“anarbitralawardmade,inpursuanceofanarbitrationagreement,inacountryotherthanAustralia,beinganarbitralawardinrelationtowhichtheconventionapplies”.TheUNCITRALModelLawgivesamoredetailedaccountofwhatconstitutes“international”arbitration.UnderArticle1(3),anarbitrationisinternationalif,atthetimeoftheconclusionoftheagreement,thepartieshavetheirplacesofbusinessindifferentStates.

WherethepartieshavetheirplacesofbusinessinthesameState,thearbitrationwillyetbeinternationalifthedesignatedplaceofarbitration,theplacewhereasubstantialpartofthecommercialobligationshastobeperformedortheplacewithwhichthesubjectmatterofthedisputeismostcloselyconnectedisoutsidesuchState.Finally,evenifalloftheabovecriteriaremainunmet,thearbitrationwillbeinternationalif“thepartieshaveexpresslyagreedthatthesubjectmatterofthearbitrationagreementrelatestomorethanonecountry.”

4.PurposeofArbitration

Arbitrationisaprivatesystemofadjudication.Partieswhoarbitratehavedecidedtoresolvetheirdisputesoutsideofanyjudicialsystem.Inmostinstances,arbitrationinvolvesafinalandbindingdecision,producinganawardthatisenforceableinanationalcourt.Thedecision-makers(thearbitrators),usuallyoneorthree,aregenerallychosenbytheparties.Partiesalsodecidewhetherthearbitrationwillbeadministeredbyaninternationalarbitralinstitution,orwillbeadhoc,whichmeansnoinstitutionisinvolved.Therulesthatapplyaretherulesofthearbitralinstitutionorotherruleschosenbytheparties.Inadditiontochoosingthearbitratorsandtherules,partiescanchoosetheplaceofarbitrationandthelanguageofthearbitration.

Arbitrationthusgivesthepartiessubstantialautonomyandcontrolovertheprocessthatwillbeusedtoresolvetheirdisputes.Thisisparticularlyimportantininternationalcommercialarbitrationbecausepartiesdonotwanttobesubjecttothejurisdictionoftheotherparty’scourtsystem.Eachpartyfearstheotherparty’s“home-courtadvantage.”Arbitrationoffersamoreneutralforum,whereeachsidebelievesitwillhaveafairhearing.Moreover,theflexibilityofbeingabletotailorthedisputeresolutionprocesstotheneedsoftheparties,andtheopportunitytoselectarbitratorswhoareknowledgeableinthesubjectmatterofthedispute,makearbitrationparticularlyattractive.Today,internationalcommercialarbitrationhasbecomethenormfordisputeresolutioninmostinternationalbusinesstransactions.

10.2.2AdvantagesandDisadvantagesofArbitration

1.AdvantagesofArbitration

Thebenefitsofinternationalcommercialarbitrationaresubstantial.Anempiricalstudyofwhypartieschooseinternationalarbitrationtoresolvedisputesfoundthatthetwomostsignificantreasonsare(1)theneutralityoftheforum(thatis,beingabletostayoutoftheotherparty’scourt)and(2)thelikelihoodofobtainingenforcement,byvirtueoftheNewYorkConvention,atreatytowhichover140countriesareparties.

AnarbitrationawardisgenerallyeasiertoenforceinternationallythananationalcourtjudgmentbecauseundertheNewYorkConvention,courtsarerequiredtoenforceanawardunlessthereareseriousprocedural