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Preparedness can ease dispute resolution costs

WHILE there are many issues to be considered when becoming involved in the import business, international arbitration is one area growing in importance as companies seek to protect themselves in the event of legal action.

International arbitration is currently being touted by some of Australia’s high-profile law firms as an easily achieved and effective form of insurance against disputing complex commercial transactions before a foreign court system that has unfamiliar laws and practices.

However, it is very much a case of ‘horses for courses’ concerning the inclusion of international arbitration clauses in contracts due to the time and expense involved.

Clayton Utz partner Professor Doug Jones said there were three broad means for resolving disputes in international trade.

p Specifying the courts of a particular country to decide any disputes. In this event those courts would decide any dispute.

p A ‘no jurisdiction’ clause that would leave open a number of different country court options for the parties.

p An international arbitration clause that will provide for international arbitration to be applied should disputes arise out of the contract.

Professor Jones, who also heads the firm’s International Arbitration Group, said international arbitration is a simple, elegant solution for resolving disputes.

“The alternative is spending what might be years, and could be vast sums of money, risking ‘home-town justice’ in an unfamiliar foreign court,” he said.

Professor Jones said there were several significant advantages for companies that included an international arbitration clause in a trade agreement.

In the first instance, international arbitration allows both parties to specify a country where the arbitration is to take place should a dispute arise, effectively erasing the issue of home-ground advantage for either party.

Secondly, international arbitration carries with it a certain level of confidentiality whereby it is a closed proceeding and therefore can not be attended or reported on by the media.

Thirdly, international arbitration ensures there will be the capacity to enforce the outcomes.

“If a WA importer took proceedings and obtained a judgement in, for example, the Supreme Court of Western Australia, it is very difficult and very expensive to get that judgement enforced in other countries,” Professor Jones said.

“International arbitration awards can be enforced in most countries in the world as if they were judgements of the court of that county.

“International arbitration puts any dispute that arises before a neutral forum where established, transparent international rules will be applied.

“There are tremendous potential cost and time savings relative to, say, litigation.

“There are also often complex questions of multiple jurisdictions when pursuing litigation.

“These simply don’t arise with international arbitration and awards are often enforceable in multiple jurisdictions.

“Disputes are also heard by arbitrators who are experts in particular disciplines and business areas.”

However, Freehills partner Paul Evans said that while international arbitration often had a role to play in major trade agreements, the inclusion of an international arbitration clause was one that must be critically evaluated for each contract.

"International arbitration is right for some things and not right for others," he said.

Mr Evans said international arbitration had disadvantages that should be considered, such as the costs and time involved.

"A lot of people don’t realise, particularly where exclusive arbitration is concerned, that the costs can be crippling."

Mr Evans said the costs of professional arbitrators, travel and accommodation costs, and the fact that arbitration could take a great deal of time, contributed to the expense of international arbitration.

Additionally, there were limited rights of revue and appeal should the arbitration ruling not be in your favour.

Mr Evans said alternatives to international arbitration included specifying a clause where the parties agreed on the choice of law and forum in a contract to determine which country’s laws should be applied, and agreement on the country where the case would be heard should a dispute go to court.

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