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How Developing World Businesses Can Make American Arbitration Work for Them

Aug 17, 2007
As the volume of business transacted between the developing and developed world businesses grows, so too does the need for a fair and efficient process for resolving disputes arising therefrom. Frequently, American businesses demand that an arbitration clause be included in business contracts so that any dispute will be resolved in a United States arbitration forum. Developing world businesses might be suspicious of this demand and assume that the process must favor the U.S. party: Why else would a U.S. Fortune 500 company demand arbitration under the auspices of an American arbitration organization?

A closer look, however, reveals that American arbitration can offer several advantages for the developing world business, among them, flexibility, efficiency, fairness and knowledgeable adjudicators. However, these advantages are attainable only if the developing country business identifies its particular needs and negotiates a process that meets them.

U.S. LAW SUPPORTS AND ENCOURAGES ARBITRATION

The United States is several decades ahead of most other countries in developing an arbitration system that courts and the business community trust and support. Over the last half century, laws have been enacted and courts have issued rulings that encourage parties to resolve their business disputes through arbitration. American courts read arbitration clauses broadly and routinely enforce them. American courts rarely overturn an arbitral result, doing so only where fraud or some other extreme deficiency has corrupted the process. Finally, U.S. courts generally enforce arbitral awards, giving it the same dignity and legitimacy as a court-entered judgment.

ARBITRATORS ARE OFTEN MORE KNOWLEDGEABLE AND OBJECTIVE THAN JUDGES OR JURIES

A non-American party might be suspicious of arbitration under the auspices of an American arbitration organization such as the American Arbitration Association, believing that rules must favor Americans and that the arbitrators will have a nationalistic bias in favor of the U.S. party. This is by no means inevitable. Just because an arbitration is brought under the auspices of a U.S. based arbitration organization, does not necessarily mean that the arbitrators will be American nationals. The parties could agree before or after a dispute arises that one or all of the arbitrators will be non-American; alternatively, a party can use any preemptory challenges it has to strike American arbitrators during the arbitrator selection process.

Moreover, most international arbitrators (of whatever nationality) know that if they gain a reputation for favoring American (or any other nationality's) businesses they will likely not be asked to arbitrate again. By contrast, an American judge is fully employed with cases regardless of how he treats foreigners, and his chances of reappointment or reelection will, if anything, be enhanced by ruling in favor of U.S. nationals vis a vis foreign nationals. Juries too will most likely be much more parochial than international arbitrators.

DEVISE A PROCESS RIGHT FOR YOU

In deciding to arbitrate the parties chose to opt-out of litigation -- a one size fits all system administered by courts and government bureaucrats -- and into a privately devised system, which they can tailor to their particular needs. For instance, if the parties' transaction concerns the manufacture of ball bearings, they might agree that at least one of the arbitrators has some experience in the manufacturing of ball bearings. Or if they do not have the financial wherewithal to pay lawyers and arbitrators hundreds of thousands of dollars, they may wish to streamline the process by providing for only one arbitrator (rather than the normal three), by limiting the time each party has to present its case, by prohibiting the taking of pre-hearing testimony, or by eliminating pre-hearing discovery completely. Of course, if the transaction is worth hundreds of millions, or billions of dollars, then the parties can devise a process that provides for three arbitrators, all with extensive experience in handling such arbitrations or expertise in the industry, and for quite extensive pre-hearing discovery.

CONCLUSION

The American arbitration system is by no means perfect, but it has proven in many instances to be far superior to litigation in the courts, and this is true both for American and non-American parties. Thus, when an American company suggests arbitration in the United States, a developing country party should not necessarily resist. Rather it should seek to negotiate rules for the arbitration process that fit its particular needs.
About the Author
Robert Y. Lewis is a founding partner of Freeman Lewis LLP, a business litigation and arbitration law firm in New York City. et more information about the arbitration process at http://www.freemanlewis.com.
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