To Arbitrate or not to Arbitrate: An Analysis on the Continued Viability of Arbitration In Settling International Commercial Disputes

Over the years, international commercial arbitration has been the prevalent method used in settling international commercial disputes.[i] However, as of recently, the international corporate community has begun to view arbitration as no longer being as time and cost efficient as it once was in settling international commercial disputes.[ii] It is for this reason that parties to disputes have began to look for more time and cost efficient alternatives to both arbitration and litigation.[iii] Despite this recent push towards mediation in the international corporate community, arbitration still remains the most viable option in settling international commercial disputes. A central reason for arbitration’s continued viability is its uncomplicated nature in enforcing arbitral awards in the international realm.

The Continued Enforceability of Arbitral Awards Internationally

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) ensures the enforceability of arbitral awards internationally. Further, the Convention provides uniformity among different states in enforcing arbitral awards. To date, 156 states are parties to the New York Convention.[iv] Accordingly, these statess have adopted a pro-arbitration stance that promotes the enforceability of arbitral awards. Therefore, when international parties enter into arbitration agreements, as long as the agreement is not null or void, arises out of a defined legal relationship, and concerns a matter capable of settlement by arbitration, contracting states are required to recognized the agreement.[v]

The Next Best Alternative to Arbitration has not Received Success in International Enforceability

 Mediation has been regarded by those in the international community as the next best alternative to arbitration; one of the central reasons being that it is believed to be more cost and time efficient than arbitration. Another reason mediation is favored over arbitration by some is because mediation allows the parties to come to mutual agreements during settlement, thereby increasing the chances that the parties will preserve their business relationships.[vi]

However, there are several obstacles that continue to threaten the enforceability of mediated settlement agreements (“MSA”) in the international realm. For example, parties to an MSA may at some point have a change of heart. Parties’ change of heart is an obstacle to the enforceability of a MSA because in most countries, MSAs are regarded as contracts.[vii] Therefore, a party cannot directly file for a court to enforce a MSA.[viii] Instead, that party would have to either file for arbitration or file a lawsuit.[ix] For MSAs to be directly enforced by a court when there is a protesting party, states would have to adopt an international model law on mediation similar to the New York Convention.[x] It is for this reason that in July 2014 at the forty-seventh conference held by the UN Commission on International Trade Law (“UNCITRAL”), the U.S. government proposed that UNCITRAL’s Working Group II create a conciliation convention that would promote the enforceability of international commercial mediated settlement agreements.

Accordingly, some may argue that once a model law on mediation is created, mediation would be able to replace arbitration as the prevalent method of settling international commercial disputes. However, that is not necessarily the case. Before the New York Convention was able to achieve success in the international enforceability of mediated settlement agreements, it had to be accepted by the international business community.[xi] Similarly, for mediation to be a successful alternative to settling international commercial disputes, it is imperative that mediation gains the trust of international commercial parties, which as of now MSAs have not yet been able to achieve.

Conclusion

While the view that mediation may serve as a better alternative resolution method in settling disputes between international commercial parties has been continuously supported, arbitration still remains the most viable option in settling international commercial disputes. Arbitration remains viable because of the current uncertainty regarding the enforceability of MSAs in the international realm. Due to this uncertainty, business representatives remain hesitant about using mediation and not arbitration, a method that remains highly enforceable internationally, in settling their disputes. Until mediated agreements are able to gain the trust of international representatives as an alternative resolution method capable of being easily enforced in the international realm, arbitration will continue to be the prevalent method of settling international commercial disputes.

 

Joyce Fondong is a 3L and a Resident Student Blogger with the Journal of Law and International Affairs at the Penn State University Dickinson School of Law.


 

[i] See Gary B. Born, International Commercial Arbitration 68 (2009).

[ii] S.I. Strong, Beyond International Commercial Arbitration? The Promise of International Commercial Mediation, 45 Wash. U.J.L. & Pol’y 011 (2014).

[iii] See Jacqueline Nolan-Haley, Mediation: The “New Arbitration,” 17 Harv. Negot. L. Rev. 61, 66-67 (2012).

[iv] http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.

[v] New York Convention, article II (1&3)

[vi] See Edna Sussman, The Final Step: Issues in Enforcing the Mediation Settlement Agreement, p. 3 (2008).

[vii] Audry Hong Li, Thought on Developing Convention on Enforceability of Settlement Agreements Reached Through Conciliation, AL-ZL-Aprag, p. 3 1118 (2014).

[viii] Id.

[ix] Id.

[x] See supra Sussman at 4-24.

[xi] Enforcing Arbitration Awards under the New York Convention, p. 4 (1999).