International Versus Domestic Arbitration

Many U.S. litigators tend to think about arbitration as a confidential “litigation-lite” — essentially the same as federal civil litigation, just behind closed doors, with fewer procedural rules, more flexibility, and an abbreviated schedule. This may be an accurate characterization of some domestic U.S. arbitration (i.e., arbitration between U.S. parties, seated in the U.S.), depending on how the parties choose to conduct the proceeding and the arbitral institution that administers it. However, counsel who approach an international arbitration in the same manner as domestic U.S. arbitration risk making procedural and strategic missteps that can undermine their clients’ cases or miss opportunities to seize an advantage. Below are seven examples of key distinguishing features of international arbitration that counsel should bear in mind when handling these matters.

Jurisdictional and Related Procedural Issues

Complex international transactions frequently involve multiple parties and contracts, and these circumstances often generate cases where a nonsignatory is seeking to enforce or avoid a contract’s arbitration clause, or where multiple parallel proceedings are launched (or could be launched) in different countries. Although nonsignatory issues also arise in domestic contexts, the cross-border element can yield hidden opportunities or risks depending on the applicability of international treaties, like the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and the arbitration laws of the countries that are potentially implicated.

For a simplified procedural example, let’s say a Canadian company (C) entered into a contract with a Florida company (F), providing for International Chamber of Commerce arbitration seated in New York in the event of a dispute. A contractual dispute arises, and for tactical reasons, C’s U.S.-based subsidiary (S), a contract nonsignatory, sues F in Florida state court. Assume that F wants this dispute arbitrated and wants a federal court, not the state court, to make the decision on whether to send the case to arbitration. In an ordinary domestic case, in the absence of federal question jurisdiction, F may have difficulty removing the case to federal court because it was sued in its home forum. 28 U.S.C. § 1442(b). However, because the contract underlying S’s claims is international, disputes about its arbitration clause are governed by the New York Convention, to which the U.S. is a party, and which is implemented in Chapter 2 of the Federal Arbitration Act. This significantly increases the chances that F can obtain removal in order to move to compel arbitration, because Chapter 2 provides for automatic removal of cases to federal court where the dispute “relates to an arbitration agreement or award falling under the Convention.” 9 U.S.C. § 205.

This is just one of many examples where the international arbitration context may play a decisive role in the direction and outcome of disputes. Spotting these potential jurisdictional and procedural issues and knowing how to navigate these situations to maximize your client’s advantage can fundamentally transform the strength of a case.

Arbitrator Selection

One of the most important decisions for a party in any arbitration is selecting the right arbitrator or arbitrators to decide the case. But unlike in domestic arbitrations, selecting an arbitrator or retired judge with little to no international arbitration experience can cause unforeseen problems in international cases. For example, an arbitrator’s lack of familiarity with jurisdictional and procedural issues unique to international arbitration can lead to unpredictable outcomes, often with extremely limited avenues for judicial correction.

Moreover, as a specialized practice area, international arbitration has many practitioners who are known and respected in the community for their experience, intellect, fairness, judgment, and diligence when sitting as arbitrators. In cases where a three-person tribunal is called for and each side nominates a party-appointed or “wing” arbitrator, each party ideally wants someone who will have credibility with whomever ultimately becomes the tribunal chairperson. Where one side selects a reputable international arbitration practitioner as their wing arbitrator and the other does not, the latter party may miss the opportunity to have a wing arbitrator whose perspective and experience play a meaningful role in tribunal deliberations.

Disclosure Versus Discovery

While discovery in domestic U.S. arbitration can look similar to the document production and depositions found in federal or state civil litigation, U.S. litigators are sometimes surprised to find that “disclosure” (as it is typically called in international arbitration) is often quite different. Against the background of the frequently cited IBA Rules on the Taking of Evidence in International Arbitration, document requests directed at an opposing party must be narrowly tailored and supported by a cogent rationale for the necessity of their disclosure. Broad, U.S.-style document requests can be rejected out of hand, leaving a party with nothing from the other side.

Likewise, the default assumption in international arbitration is generally that there are no depositions unless the parties agree otherwise. Parties who build their case strategy around the availability of depositions of potential key witnesses can end up with evidentiary holes in their case prior to the merits hearing.

Written Submissions, Motions, and Hearings

Unlike many domestic U.S. arbitrations, the parties’ case in chief in international arbitration usually goes in largely on paper, with the live merits hearing devoted primarily to cross-examining witnesses and experts based on their written testimony and reports. This is a fundamentally different exercise that requires different tactical choices and a modified approach to a typical cross-examination, particularly when simultaneous language interpretation is added into the mix.

In addition, the motion practice found in U.S. domestic litigation and some domestic arbitration, such as motions to dismiss and for summary judgment, is less common in international arbitration. As such, parties to an international arbitration should not assume that they can “knock out” some or all of an opponent’s case with a motion, and there are fewer procedural gateways that can provide off-ramps in advance of the merits hearing with witness testimony.

Arbitral Procedural Guidance

Although international arbitration procedure does not have precedential guidance from prior case law like federal civil litigation, this does not make it a free-for-all. Many arbitration awards have been made public and can be cited as persuasive authority on procedural questions. Moreover, arbitral institutions that administer international arbitrations publish their own sets of guidance that parties may refer to. There are also dozens of (now digital) library shelves devoted to commentaries by eminent international arbitration scholars and practitioners on arbitral procedure that international arbitration tribunals may also treat as persuasive authority. Knowing where to look to research these types of authorities can convert a bare argument that relies solely on the text of an arbitral rule or procedural order into one that is deeply grounded in international arbitration custom and practice.

Award Enforcement and the New York and Panama Conventions

Converting an arbitration award into a court judgment for enforcement is a standard part of domestic U.S. arbitration — but this may not matter in an international case if the counterparty has few or no assets in the U.S. By contrast, winning an international arbitration award in the U.S. opens the door to enforcement against assets in over 170 countries that, like the U.S., are parties to the New York Convention and the Panama Convention (the 1975 Inter-American Convention on International Commercial Arbitration), implemented in Chapters 2 and 3, respectively, of the Federal Arbitration Act. Contemplating enforcement strategy from the outset can yield key advantages in terms of knowing where to look (or where your opponent will look) for award enforcement.

Tactical Considerations

Although high-stakes international arbitrations are hard-fought just like any other major dispute, the tactics, tone, and style of counsel’s argument to the tribunal and interactions with opposing counsel are often more collegial and diplomatic than in purely U.S. litigation. Aggressive, overheated rhetoric and scorched-earth trial tactics that may receive some leeway in the U.S. can ultimately hurt the credibility of advocates in front of a more internationally minded tribunal.

Overall, it is often advisable for U.S. litigators to think about international arbitration as a distinct practice area with its own legal and procedural framework. Careful preparation with attention to the critical differences between international arbitration and U.S. domestic arbitration and litigation, including those discussed above, will help identify issues, risks, and opportunities that could alter the outcome of any given international dispute.