International arbitration can be an effective conflict resolution mechanism for aerospace companies. Many international transactions involve jurisdictions where the judicial systems entail a certain amount of risk, such as Russia, China, and India. In these and other places, there have been reports of incidents of corruption, and choice of law clauses have been known to be held ineffective. As well, procedural and evidentiary rules can be unpredictable in certain foreign courts. Foreign language proceedings can certainly increase the cost for non-domestic parties, and shadow counsel are often retained. In sum, litigation in certain foreign jurisdictions can result in significantly higher risks and costs.

Agreeing on the court system of a specific jurisdiction may not always be possible for parties participating in an international transaction. Just as foreign courts might be unacceptable to a Quebec company, Quebec courts might be unacceptable to the counterparty. Accepting a court in a neutral country is not without risk: forum non-conveniens doctrine is certainly a possibility; the discovery obligations may be extensive; the case may garner publicity; the proceedings may be subject to delays and appeals; the costs of local counsel may be expensive; and no effective international enforcement mechanism may exist for the judgment. In such cases, international arbitration is an attractive alternative.

International arbitration represents an effective neutral forum for dispute resolution. The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention), counting over 156 Contracting Parties, can “neutralize” the effect of troublesome jurisdictions. Through their domestic courts, Contracting Party countries commit to enforcing written arbitration agreements and recognizing and enforcing arbitration awards. The international arbitration alternative allows parties to choose a neutral and convenient place of arbitration and choose independent, impartial, and qualified arbitrators. These arbitrators implement choice-of-law clauses, allowing parties to select the neutral law that will govern the subject matter of the dispute.

Beyond offering a neutral forum, international arbitration can be a cost-effective alternative to international litigation, if the process is properly used and managed. First, the hearings focus on the cross-examination of witnesses, and are thus often much shorter than hearings in court. Parties submit direct testimony in writing (witness statements) ahead of time and legal arguments are in pre- & post-hearing memorials. The scope of discovery is circumscribed: witness statements generally do away with the need for depositions, and the scope of document production is generally quite limited. Parties often adopt the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration, which promotes an efficient, economical and fair evidentiary process. Many other cost-saving mechanisms are often available, including fast-track procedures for appropriate cases, and bifurcation of proceedings when preliminary issues are dispositive. International arbitration can be the final stage of a stepped dispute-resolution process, as set out in the following illustration: (1) a time-bound consultation and negotiation (e.g.,. the CEOs are bound to negotiate), (2) a time-bound mediation, and (3) a final and binding arbitration in case the matter is not resolved in the earlier steps. Such a stepped procedure ensures that parties do not get stuck in an international dispute without giving thought to efficient and early ways of resolving the matter amicably.

International arbitration offers additional advantages. The proceedings are private and, if provided for in the agreement or rules, confidential. International arbitration is a very flexible mechanism, and its procedures may be adapted to suit the nature of the dispute. Arbitral awards are not subject to appeals and revisable only by way of limited judicial review for fundamental breaches of due process, jurisdiction or public policy. Furthermore, parties have the convenience of selecting their counsel of choice, rather than having to use local counsel. Finally, costs can be shifted to the losing party, which is not always the case in Court proceedings. To conclude, international arbitration is a dispute mechanism that has many advantages for entities that are engaging in international transactions.

Martin Valasek, Partner
Vanessa Rochester, Of Counsel