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Arbitrate!

So, you’ve started contracting with foreign suppliers. What happens when something goes wrong?

A fortnight ago, we helped in hosting a presentation by international arbitration expert Gary Born on his proposed bilateral arbitration treaty.

Currently, companies entering into contracts can add in a simple line specifying the rules under which any contractual dispute would be adjudicated. There are plenty of different adjudication forums from which to choose. A single line in the contract incorporates the entire adjudication framework into the contract.

When no adjudication framework is specified, things get tougher and can involve simultaneous suits working their way through both countries’ courts, the judgements of neither of which could wind up being enforceable.

Born suggests bilateral arbitration treaties as solution. This mechanism would govern only company-to-company contracts, and so has absolutely no implications for anything that gets anti-investor-protection folks riled up. Any two countries entering into the arrangement would be specifying the default option governing contractual disputes between companies in the two countries. Companies could contract away from that if they preferred a different arbitration framework.

Born’s presentation is below.

I should have used Chair’s prerogative to shoehorn my question in; I’ll put it here instead. Gary provides excellent answers to a range of “But…” objections. Here’s my final “But…”.

I really like the idea. But if much of the benefit of arbitration over national courts even in within-country disputes comes from competitive forum shopping across arbitration providers, specifying the default option – and especially too many countries specifying the same default option – could hurt the competition that provides the benefits. The treaty is still a great idea, but countries signing them might want to periodically revisit which forum is chosen as default. And rather than having a model bilateral arbitration treaty that picks one forum in particular, the negotiating countries might want to choose whichever forum is currently best.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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