International Dispute Resolution: Arbitration Isn't the Only Alternative to Litigation
Barron, Jacob, Business Credit
Disputes are a fact of commerce. At some point in the course of many healthy business relationships there will be a disagreement over who owes what to whom, and the true test of that relationship is the manner in which the two parties come together to address it. A number of different factors enter into the dispute resolution equation, and on the international trade level, these might make it appear considerably more complex than that for two companies in the same country meeting to discuss a discrepancy on an invoice or in a less friendly context like within the confines of a courtroom.
The latter option is something companies in the US and Europe hope to avoid, but can default to when a situation deteriorates to a point where court intervention is needed. When dealing with an international customer, however, the courts are often something to avoid, except in the most dire instances. That's because while some emerging markets have been the recipients of billions of dollars in commerce in the wake of the global financial crisis, their court systems haven't kept pace with the increase in business. While these economies have developed rapidly, and in some cases too rapidly, the integrity of their legal systems can often remain an open question, leaving international sellers to look for other alternatives when disputes arise. "Companies are increasing their transactions in the emerging markets," said Robert Brown, an attorney with Greenebaum Doll & McDonald PLLC, "and they're increasingly relying on arbitration in those markets."
Arbitration can often be a viable option for companies looking to cleanly resolve their disputes with customers in countries with weaker legal systems, or in countries where the costs of taking a dispute to court would be prohibitively high. "They're more likely to roll out arbitration where they don't trust the courts or, alternatively, when they're trying to cut down on court costs," Brown said. "You're trying to save the coats of what you think the litigating will be, and people consider arbitration to be a cheaper substitute to the court system."
The arbitration process isn't completely freewheeling. Certain differences present both arbitration's charms and its risks in comparison to taking a dispute to court. "Originally, it was designed to be more flexible than the traditional litigation process," Brown said. "There's been less discovery, so that reduces some of the time and expense of it. And there's more flexible use of evidence," he added, noting that elements like hearsay and additional documentation can carry more weight in an arbitration proceeding than they would in a normal court proceeding.
There are some risks associated with less discovery and looser rules of evidence, but even so, companies continue to flock to arbitration. Ironically, this growing trend is driving some of the change that may make many companies rethink it as their go-to alternative to litigation. The increase in demand is driving an increase in costs.
"Prices are rising across the board," Brown said. "Because of that it's becoming more suited for larger disputes." The increased cost of arbitration is being driven by an increased complexity in the proceedings, Brown noted, which is what arbitration was designed to minimize in the first place. Over time, the result of looser rules and increased use has in some ways diminished how much sense arbitration makes in every case where each company wants to keep things out of court, especially in cases where the amount that's being disputed isn't all that large. This shift has, in turn, driven companies to look elsewhere for how they settle their disagreements with one another.
"It's an evolutionary process, so we began with litigation and then we began the shift over to arbitration as an alternative," Brown said. "Arbitration has more specific rules, but it's not as detailed, it's not as complex and it's not a jury trial, primarily. …