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Limiting the scope of arbitration in international trade business disputes helps save money.

Limiting Scope and Costs of Arbitration in International Trade Business DisputesARTICLE

By Christine Parizo

Companies commonly use arbitration instead of suing in court to settle international trade business disputes, mainly because it usually can save money. However, without properly limiting the scope upfront, international arbitration can rack up large bills comparable to what a court battle might cost. Arbitration provisions built into international trade business agreements can be written to limit scope and keep costs down, while still ensuring that overseas business disputes are settled fairly.

Legal Guidelines for Arbitration in International Trade Business Conflicts

For example, the International Centre for Dispute Resolution (ICDR), the global arm of the American Arbitration Association (AAA), has published guidelines for arbitration related to exchanging information. This is meant to control the cost of e-discovery and document exchange, which can help reduce the cost of arbitration.1 Arbitration statutes like the U.K.’s Arbitration Act 1996 and the U.S. Federal Arbitration Act allow parties to limit the cost of arbitration by adding provisions to arbitration contracts to limit the scope and length of proceedings.2 The contract phase of any overseas business agreement is critical; this is where limits can be set and agreed to before a dispute arises and can get out of hand.

The first opportunity to limit arbitration is in the number of arbitrators. Parties can agree to appoint just one arbitrator and define necessary qualifications for the arbitrator. One thing that parties may want to consider before limiting the number of arbitrators to just one is whether a potential claim amount may be large, considering the type of overseas business deal involved.3 The cost savings from using just one arbitrator may not be worth it if the case is complex or requires several areas of expertise.

Limiting Discovery Can Reduce Costs in International Trade Businesses

Discovery can be a large expense in litigation or arbitration, which is why the parties involved in an international trade business deal may want to also limit the scope of discovery in their upfront agreement. One way is to limit materials that are discoverable to those that are highly relevant.4

Other methods of limiting discovery can include eliminating certain types of discovery. For example, the arbitration agreement can include clauses to remove depositions or third-party discovery from the discovery process. In fact, limited discovery is basically how litigation operates outside the U.S. – European countries, for example, do not have depositions during litigation.5 Foreign entities may bristle at having to produce large volumes of proof as in a U.S.-style litigation proceeding. So limiting the amount that needs to be produced, the types of discovery being used or other elements can help ease some of the concerns of using arbitration at the outset.

Beware of What’s Limited in International Trade Businesses

Limiting the length of arbitration proceedings can also help keep costs down. However, specifying too short a time frame may result in inadequate time to delve into complex issues. The ICDR cautions against setting artificial deadlines that may prevent arbitration awards from being enforced.6

Additionally, it may be difficult to get arbitrators to agree to an abbreviated time frame. To do so, experts recommend tying the enforceability of the arbitration award to the length of the arbitration itself. An extreme example suggested for arbitration in cross-border mergers and acquisitions by an article in The DealerMaker’s Journal suggests a clause stating that if the arbitration trial takes more than 10 days, the award is non-binding and unenforceable anywhere in the world.7

In its Guide to Drafting International Dispute Resolution Clauses, the ICDR also cautions against including clauses that are too general when limiting the exchange of information.8 Restricting information-gathering too broadly may mean that arbitrators can’t do their job as well as they otherwise would, so it’s important to take that into account when including clauses to limit the scope of arbitration.

The Takeaway

Utilizing arbitration instead of litigation in international trade business disputes is a way to save money, particularly since lengthy court battles can rack up legal fees, require extensive discovery and delay dispute resolution – as well as any awards. To fully realize the benefits of speedy, low-cost dispute resolution, companies involved in overseas business may want to work with their counsel to judiciously limit the scope of arbitration. Experts agree that effectively limiting discovery in arbitration proceedings can help keep costs down.

Christine Parazio - The Author

The Author

Christine Parizo

Christine Parizo is a professional writer specializing in business and technology. She's written for a variety of TechTarget sites, including searchSAP.com, searchSOA.com, and searchCloudApplications.com, as well as HPE's Infrastructure Insights and The Pulse of IT.

Sources

1. "INTERNATIONAL COMMERCIAL ARBITRATION", Dispute Resolution Journal 66, no. 4: 76-83. Business Source Complete, EBSCOhost.
2. "INTERNATIONAL COMMERCIAL ARBITRATION", Dispute Resolution Journal 66, no. 4: 76-83. Business Source Complete, EBSCOhost.
3. "Drafting Arbitration Clauses: Practical Considerations for In-House Counsel", Stout Risius Ross; http://www.srr.com/article/drafting-arbitration-clauses-practical-considerations-house-counsel#sthash.Fq7jiahy.dpuf
4. "INTERNATIONAL COMMERCIAL ARBITRATION", Dispute Resolution Journal 66, no. 4: 76-83. Business Abstracts with Full Text (H.W. Wilson), EBSCOhost.
5. "Limiting Discovery in Arbitration: Should You Write Discovery Out of the Deal?", Inside Counsel; http://www.insidecounsel.com/2014/07/25/limiting-discovery-in-arbitration-should-you-write?&slreturn=1478102624
6. "Guide to Drafting International Dispute Resolution Clauses", International Centre for Dispute Resolution; https://www.adr.org/aaa/ShowPDF?doc=ADRSTG_002539
7. "Pros and Cons of Using Arbitration to Settle Cross-Border M&A Disputes", Mergers & Acquisitions: The Dealermaker’s Journal.
8. "Guide to Drafting International Dispute Resolution Clauses", International Centre for Dispute Resolution; https://www.adr.org/aaa/ShowPDF?doc=ADRSTG_002539

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