International arbitration is a non-governmental alternative for resolving disputes between individuals, companies, or governments from different countries. It is used by mutual consent when the parties involved have different nationalities.
A neutral party, either a specific person or a commission, resolves the dispute based on international law or legal rules agreed upon by the parties.
International arbitration can be either a permanent organisation, often operating under various countries’ Chambers of Commerce and Industry, or a body specifically established to resolve particular disputes. The outcome of international arbitration is an arbitral award. According to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), these awards are binding on the courts of the 169 countries that have ratified the convention.
The most common type of international arbitration is commercial arbitration, which is used to resolve disputes between companies and corporations from different countries.
Advantages and disadvantages of international arbitration
Parties increasingly prefer international arbitration over state courts for resolving international disputes. This preference is due to several advantages of arbitration institutions:
- Feasibility of solutions. For most countries that have ratified the New York Convention, the recognition and enforcement of arbitration agreements are mandatory. In contrast, treaties recognising state court decisions from other countries are rarely successful. Consequently, the implementation of international arbitration decisions is more straightforward.
- Neutrality. International arbitration is a neutral party that resolves cross-border disputes and ensures impartiality.
- Confidentiality. Arbitration proceedings are more private and confidential than state courts. Hearings are usually closed, and decisions may only be made public in a few years.
- Ability to choose arbitrators. Parties to the conflict can choose an arbitrator, specifying their qualifications, such as experience in a particular field or expertise in a specific area of law.
- Flexibility of the arbitral process. International arbitration is less formal than state court proceedings, allowing parties some freedom in determining procedural rules, the venue of the hearing, and other aspects.
The shortcomings of international arbitration include the absence of mechanisms to influence the parties, which leads to an inability to get complete information on the case, ensure the disclosure of certain documents, and require documents from public authorities. Accordingly, the ability of arbitrators to receive a full picture of the dispute and the circumstances that led to it is questioned. Moreover, in most cases, recourse to international arbitration deprives the parties of the right to appeal the award, as they undertake to comply with it without delay or review.
Another significant disadvantage of international arbitration is its high cost. AUWCL Professor Susan Frank conducted a study showing that each party to arbitration spends approximately $1.5 million per year during the proceedings in the United States. In turn, research by The British Institute of International and Comparative Law (BIICL, UK) showed that the costs of international investment arbitration are the highest, with parties spending an average of $4.7 million on arbitration proceedings (data for 2021).
