I. Arbitration - General Information

1.1. Advantages of International Arbitration

Although litigation and arbitration share the same objective, i.e. the resolution of a dispute by a third party, they differ substantially. Most obviously, in arbitration, the hearings are held in private (see infra VIII.) and before a single arbitrator (or an arbitral tribunal) who renders a final and binding award. An arbitrator is not a state court judge but rather a (legally) qualified individual, appointed by the parties to the dispute, subject to an arbitral institution making such appointment (see infra III.).

There are numerous reasons why arbitration is selected over state court litigation in international business:

  • The parties to the dispute can freely choose their arbitrator(s) – hence, they may select an individual with the experience required in the particular case. An arbitrator does not have to be legally trained, although this will mostly be the case (see infra III.);
  • Arbitral procedures are private and generally confidential to the parties and the arbitrator(s) (see infra VIII.);
  • Arbitration is generally quicker than litigation. In particular, arbitral tribunals are often quicker in reaching a final decision than national state courts. This results from the flexibility of the arbitration procedure itself, and the fact that there is no appellate court or further judicial instance in arbitration proceedings (except for very severe reasons; see infra VII.);
  • Arbitrations are more flexible than state court proceedings. The procedure may be tailored to a particular case to make the best use of time, whilst still ensuring a proper consideration of the matters in dispute (see infra V.);
  • An arbitral award may be enforced just like a state court decision. In addition, it can be enforced in another country, provided the respective country has adopted the 1958 New York Convention on the Recognition and Enforcement of Foreign Awards (currently 154 countries) (see infra IX.); and
  • Hearings can be held anywhere that is convenient for the parties, and at any suitable time (including holidays or weekends).

Hence, arbitration is the preferred method for finally resolving commercial disputes if (i) the parties place value on privacy; (ii) they are not part of the same legal jurisdiction; (iii) the nature of the dispute requires particular expertise; and (iv) the parties attach importance to a swift resolution of their case in dispute.

1.2. Institutional Arbitration vs ad hoc Arbitration

It is important to distinguish between institutional arbitration and ad hoc arbitration. Arbitral proceedings are either conducted under the auspices of an arbitral institution or ad hoc, meaning without the involvement of any such institution.

1.2.1. Benefits of Institutional Arbitration

Regularly, the contract between the parties containing an arbitration clause will determine a particular institution to act as arbitration administrator. The benefits of institutional arbitration are obvious. In particular: (i) existing rules and procedures that guarantee the arbitration commences and proceeds to a conclusion without undue delay; (ii) administrative assistance from institutions; (iii) lists of qualified arbitrators; (iv) appointment of arbitrators by the institution should the parties request it or be in default of making any such appointment; (v) physical facilities and support services for arbitrations; and (vi) fixed fees for arbitrators.

1.2.2. Ad hoc Arbitration

Ad hoc arbitration is a proceeding that is not administered by an institution, and therefore requires the parties to make their own arrangements. One common misunderstanding when comparing these two possibilities to conduct arbitral proceedings is that ad hoc arbitration is less expensive than institutional arbitration. At first sight, this seems to be true: In ad hoc arbitration there are no fees to be paid to an institution for administrative services. However, the administrative services that arbitral proceedings require do not cease to exist. In ad hoc arbitration the arbitrators themselves have to handle these administrative aspects, and they do not undertake these tasks without charging the parties. Furthermore, the negotiating power of the arbitrators with respect to their fees, regularly necessary in ad hoc arbitration, is rather high. This leads to the conclusion that ad hoc arbitration tends to be more expensive than institutional arbitration.

Parties nevertheless wishing to conclude an ad hoc arbitration clause, or seeking to proceed to arbitration after a dispute has arisen, have the option to negotiate a complete set of rules, establishing procedures which fit precisely their particular needs. Experience has shown that this approach requires significant time, attention and expense without providing assurance that the terms agreed will address all eventualities.

Other options available to parties wishing to proceed ad hoc include: (i) adoption of the rules of an arbitral institution, amending provisions for selection of the arbitrator(s) and removing provisions for administration of the arbitration by the institution (where possible)1, (ii) incorporating statutory procedures such as the Austrian Arbitration Act (or applicable state law), or (iii) adopting rules crafted specifically for ad hoc arbitral proceedings such as the UNCITRAL Rules which may be used for both domestic and international disputes.

1.3. Other Forms of Dispute Resolution

Increasingly, clauses are inserted in international business contracts to provide that, if a dispute arises, the parties shall try to resolve it primarily by (amicable) negotiation. Such formula can be to the effect that in the event of a dispute, the parties will in the first place endeavour to settle such dispute by negotiating “in good faith”. Negotiations are only likely to succeed if the parties involved are capable of observing the substantial issues objectively with the eyes of a third party. Obviously, it is hard to remain objective where vital interests are threatened and/or at stake. Therefore, an impartial third party may be able to lead the parties’ discussions that otherwise are at risk of getting nowhere.

This is why international contracts often provide that, before the parties commence arbitration (or litigation as the case may be), they shall endeavour to settle any dispute by some other form of alternative dispute resolution (ADR). These ADR methods typically involve mediation, or other forms of conciliation procedures (which are sometimes considered, depending on the wording of the clause, to constitute an additional condition for the tribunal’s jurisdiction). It is recognized by Austrian courts that such procedures are admissible. In terms of drafting, parties should take care to ensure that the arbitration agreement remains operable.

 

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1 This could trigger diverse complications as the bodies of the arbitral institutions are designed within a specific framework. See in detail A. Redfern et al., Redfern and Hunter on International Arbitration (2nd edn, New York, Oxford University Press, 2009), para. 1-157 et seq.