Chapter § 8.02 Choosing Between Arbitration and Litigation

• Jurisdiction: United States
• Publication year: 2020

§ 8.02 Choosing Between Arbitration and Litigation

Arbitration provides two principal advantages to litigation: it provides both a neutral forum for adjudicating a dispute between parties from different states and the ability to enforce the resulting award internationally. The ease of enforcing the arbitral award in jurisdictions beyond the one in which the award is issued is vital to cross-border transactions, because the award is likely to be enforced in a different jurisdiction than the arbitral seat or a party’s assets are likely located in multiple jurisdictions. This advantage, in particular, renders arbitration the preferred, if not required, means of resolving cross-border disputes.

Arbitration has other advantages: it provides privacy, flexibility, qualified adjudicators, and finality to its users. It also has downsides: it can be costly and lengthy, the tribunal’s authority is limited in some respects compared to the judiciary, and the tribunal lacks jurisdiction over non-parties to the arbitration agreement.

Both the advantages and disadvantages of arbitration are described below.

[1] Advantages of Arbitration

[a] Arbitration Provides a Single, Neutral Forum to Hear Disputes

When a dispute involves parties from different states or legal systems, arbitration eliminates the home court advantage that accrues to one party in litigating in the familiar courts, legal traditions, and language of its own jurisdiction. Arbitration does so by providing both a neutral forum and neutral adjudicators: the parties may agree on a neutral place of the arbitration (the arbitral “seat”) and a neutral governing law, and they may select arbitrators from a neutral legal tradition or other background. Additionally, in most instances, the parties will participate in the selection of the arbitrators, who are required to be independent and impartial.³

The availability of a neutral forum, coupled with independent and impartial adjudicators selected with the parties’ input, alleviates concerns that may exist about the potential of resolving disputes in certain jurisdictions, from a lack of familiarity with the law and courts in the jurisdiction of the other side to questions regarding the qualifications or independence of the judiciary in those jurisdictions.

[b] Arbitration Awards Are Internationally Enforceable

Relative to court judgments, arbitration awards are easier to enforce internationally because their enforcement is governed by a widely ratified treaty, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) as well as the widespread adoption of legislation supporting the New York Convention. There is no comparable treaty or legislation for court judgments.

The New York Convention requires its 159 contracting states—among them, all of the Americas and the European Union, Australia, Japan, Russia, India, and China⁴—to recognize arbitration agreements and to enforce arbitration awards except in limited, enumerated circumstances. Particularly, all contracting states to the Convention must recognize arbitration agreements falling within the Convention and must compel arbitration under them “unless” a state “finds that the said agreement is null and void, inoperative or incapable of being performed.”⁵ Further, contracting states “shall recognize arbitral awards as binding and enforce them”⁶ except on limited grounds:

(1) parties to the arbitration agreement were incapacitated or the arbitration agreement is invalid;

(2) “the party against whom the award is invoked was not properly notified of the arbitration or was otherwise unable to present its case”;

(3) the arbitral tribunal lacked jurisdiction to determine all or some of the issues before it (and, if only some issues, the award may still be partially enforced);

(4) the composition of the arbitral tribunal or the arbitration procedure did not accord with the parties’ arbitration agreement; or

(5) the award was vacated by a court in the arbitral seat or the award is not yet binding. ⁷

Additionally, enforcement may also be refused if a court in the arbitral seat determines that:

(1) the arbitration’s subject matter may not be resolved by arbitration in that country or

(2) “recognition or enforcement of the award would be contrary to the public policy of that

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