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Arbitration Clauses In International Contracts

By Ileana M. Blanco
November 22, 2004

Parties to all international contracts face different issues depending on whether the other contracting party is a privately owned enterprise or a State-owned entity. In both circumstances, the foreign investor may have legitimate concerns about the partiality the local judiciary may have towards parties from its own State if a contractual dispute arises and about the enforceability of any judgment against the local party. When the other contracting party is itself a Sovereign State, the foreign investor confronts the universal perception ' if not actual reality ' that a judiciary as a government entity may be controlled by the State and biased against the investor.

For international transactions, arbitration in a neutral forum offers the hope of reducing bias and avoiding parallel lawsuits in different countries. The proceedings are private and the arbitrators may have some expertise on the issues in dispute. Arbitration also provides parties with greater control over the resolution of their disputes than litigation in a foreign forum. Some of the most important factors that parties can control through arbitration include:

  • The place of the arbitration (for neutrality, enforceability, and convenience considerations);
  • The identity of the arbitrator (for example, their nationality, qualifications, and number);
  • The language in which the arbitration is to be conducted; and
  • The applicable substantive and procedural law.

Additionally, investment guarantor agencies prefer arbitration as the mechanism for resolving disputes pertaining to investor contracts involving the Overseas Private Investment Corporation (OPIC), the Trade and Development Agency (TDA), the Multilateral Investment Guarantee Agency (MIGA), and others.

Arbitration also offers enormous variation in the mechanisms used to establish the facts and the law. While a letter of credit dispute might be resolved solely on the basis of documentary evidence, a large construction case, in contrast, could involve years of proceedings, with pre-trial discovery, depositions, motions on applicable law and jurisdiction, witness statements, and extensive cross-examination.

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