One of the main uncertainties, when a company decides to export, is which law will be applied and which court will be competent in case of litigation. Commercial arbitration is becoming the first option among companies that need to resolve a conflict. This can be a useful tool and therefore, we decided to write a post about its advantages and disadvantages, compared to the ordinary jurisdiction.
List of advantages:
– Neutral forum. It is a jurisdiction that does not correspond to the country of any of the parties as it is dissociated from any court.
– Specialized arbitrators in the matter of the conflict. Availability of arbitrators that can study the case, while in ordinary courts cases are accumulated and it is impossible for the judges to study and analyze each case with due diligence and sufficient time.
– Free choice of the number of arbitrators. Depending on the complexity, the number of arbitrators that make up the arbitral tribunal can be agreed upon.
– Simplicity. Both parties know beforehand the conflict resolution system, dispensing with the study of the particularities of the agreed judicial system.
– Quickness. This is a rapid system, in contrast to jurisdictional systems of all countries that face a delay in the processes.
– Confidentiality. In many cases, companies have to provide sensitive information about accounts, contracts, etc. In the absence of a principle of public access to official records, companies feel more comfortable resorting to this method.
– Flexibility. The formalisms that characterize judicial processes are not necessary. Furthermore, there is also the freedom to choose the language of the procedure.
– Maintenance of business relationships. When faced with a rapid and confidential process, the confrontation between the parties is minimized, and the damage caused to present and future commercial relationships is less. In addition, there is usually a preliminary stage of negotiation or mediation, so there may be a negotiated outcome that avoids the arbitration process.
– The arbitral awards cannot be appealed and are enforceable like a regular sentence, not only in the country in which they are issued. As established in the New York Convention that makes possible its execution.
List of disadvantages:
– High cost. Statistics set in an average of two million euros the costs of resolving a dispute in an international court, while the arbitral awards imply a real cost that can exceed 8 million (Expansión 2017).
– Even-handed decisions. Some experts argue that arbitrators tend to make decisions that partially give reason to both parties, thus fleeing decisions that are completely favorable to only one of them (Ortiz, 2015, 5).
– Risks of a poorly drafted arbitration clause. Every clause must be negotiated and drafted carefully. Otherwise, they can cause many problems.
– Submission to courts or arbitration institutions not recommended. Not all arbitration courts are equally recommendable. It must be found the court that suits the needs of the case, with sufficient guarantees of professionalism, independence, and impartiality.
– Difficulty in the appointment and constitution of the arbitral tribunal. There may be obstructionist attitudes by one of the two parties that hinder the appointment and constitution of the arbitral tribunal.
– Necessity of the intervention of the jurisdiction. Arbitrators lack the coercive power to enforce their decisions, which means that in situations of rebellion there is no alternative but to go to the ordinary courts.
– Dispute with several parties involved. If there are more than two parties involved, submission to arbitration may be complicated.
– Difficulty of appealing the arbitral awards for an infraction of the legal system. The lack of “reviewability” of the awards is an inherent risk to the arbitration process, which the parties have to assess and assume at the time of submitting to arbitration.
At the national level, there is in Spain the Court of Arbitration. This is the body in charge of administering the commercial arbitrations that are entrusted to it. The Spanish Court of Arbitration is also dean of the Spanish arbitration institutions, operating as an independent service attached to the Chamber of Commerce of Spain.
In addition, in Spain there is a large number of institutions that perform this work, such as: the Court of the Chamber of Commerce of Madrid, the Civil and Commercial Court (CIMA), the Arbitral Tribunal of Barcelona (TAB), the Spanish Court of Arbitration of the Chamber of Spain, the Court of the Chamber of Commerce of Valencia and the European Arbitration Association. All these institutions are progessively getting more companies and lawyers that look for arbitration as a tool for conflict resolution.
At the international level, the main agency is the International Court of Arbitration of the Paris International Chamber of Commerce. This institution had a record number of arbitration cases in 2016. 966 new cases that also meant the largest number of cases in the 94-year history of this institution. The number of new arbitrations in the International Chamber of Commerce has increased slowly but steadily over the past two decades, becoming the preferred method for the resolution of certain commercial disputes.
Going to an arbitration court must be a thoughtful decision. However, the important thing when choosing this option is that the Arbitration Court is renown and creditworthiness. This will guarantee their impartiality.
If you have any doubts about going to commercial arbitration or writing a commercial clause correctly, do not hesitate to contact Dos Aguas team.
Useful addresses:
– Court of Arbitration of the Official Chamber of Commerce, Industry and Services of Madrid (Corte de la Cámara de Comercio de Madrid) (link)
Sources:
– David A Ortiz Gaspar (2015) El arbitraje: ¿Qué es y cuáles son sus ventajas e inconvenientes? Bepress. Available online (link)
– ICC Belgium (2017) ICC reveals record number of new Arbitration cases filed in 2016. Available online (link)
– Sergio Saiz (2017) Cuánto cuesta acudir a un arbitraje internacional. Periódico Expansión. Available online (link)