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Q & A

- International Arbitration -

Q1 | What kind of dispute resolution procedure is international arbitration?

International arbitration is a procedure in which a dispute arising out of a cross-border contractual transaction is resolved not by a court, but by the decision of one or more arbitrators appointed on the basis of the parties’ agreement.

The decision rendered by the arbitral tribunal is called an "arbitral award." An arbitral award is in principle final and binding on the parties.

Compared with litigation in national courts, parties have more input about the international arbitration process, including as to the seat (or legal place) of arbitration, the institutional rules under which the arbitration is administered, the language of the arbitration, the choice of arbitrator(s), and the manner in which the proceedings are conducted.

Q2 | What are the advantages of choosing international arbitration over litigation abroad?

The main advantages of international arbitration are (1) enforceability of the arbitral award, (2) neutrality, (3) decision-maker expertise, and (4) confidentiality.

Whether a judgment rendered in the courts of one country can be enforced in another country depends on the latter country’s laws and whether a treaty between the individual countries is in place to permit such enforcement. Enforcement of court judgments across national borders can be unpredictable and in some countries is not available. By contrast, under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), to which over 170 countries are contracting states, recognition and enforcement of a foreign arbitral award may be sought in most nations around the world. The cross-border enforceability of arbitral awards is a significant advantage over national court judgments.
Further, in arbitration parties can choose a neutral country as the arbitral seat (or legal place of arbitration) rather than the national courts of a counterparty’s home country. See Q6(2) below for explanation of the arbitral seat.
Parties can also select as arbitrator(s) an individual or individuals who may be familiar with the type of transaction, industry sector, or area of law at issue. Parties in court proceedings are not able to choose their judge(s).
In addition, unlike most court proceedings, international arbitration is usually confidential, so parties can protect sensitive commercial information, trade secrets, and their business reputation.

Q3 | What kinds of disputes are suited to international arbitration?

International arbitration is used for a wide range of disputes arising out of cross-border commercial transactions and contracts, including sales and purchase agreements, distributorship agreements, license agreements, M&A agreements, and joint venture agreements, as well as construction and infrastructure, energy, finance, intellectual property, and technology transactions.

Q4 | Can we use international arbitration even if the parties’contract contains no arbitration clause?

Even if a signed contract does not contain an arbitration clause, international arbitration may still be available if parties are willing to agree to arbitration later, for example, by signing a separate arbitration agreement.

In practice, however, once a dispute has escalated, one or more parties may be unwilling to modify their contract to agree to arbitration. It is therefore important to include an international arbitration clause at the outset when negotiating and entering into a contract with an overseas counterparty.

Q5 | What should an arbitration clause in an international contract contain?

An arbitration clause should make clear that disputes arising from a contract are to be resolved by international arbitration. An arbitration clause does not need to be complicated, but the following points should be specified.

The scope of the disputes subject to arbitration (typically this would be all disputes arising under the contract at issue)
The designated seat (or legal place) of arbitration (see Q6(2) below)
The designated arbitral institution and rules
The designated number of arbitrators (usually one or three)
The designated language of the arbitration

It usually is advisable to start from the model arbitration clause published by an arbitral institution and then adjust it to the transaction and contract at issue. Lawyers from GI&T can assist in this respect.

Where a transaction involves several contracts — a master agreement, individual contracts, a guarantee, a shareholders’ agreement, etc. — it is important that these contracts’ dispute resolution clauses be consistent with one another. If the arbitral institution or seat differs from contract to contract, it may become difficult to deal with related disputes in a single arbitration.

If a tiered dispute resolution clause providing for negotiation or mediation before arbitration is used, the duration of the negotiation or mediation period should be specified clearly so that parties cannot delay commencing arbitration once it is apparent that negotiation or mediation will not work.

Q6 | How should we choose the arbitral institution, the arbitral seat, and the language of arbitration?

1. The arbitral institution

An arbitral institution provides the rules under which arbitral proceedings are administered, as well as staff people who superintend and facilitate the proceedings. Arbitral institutions do not decide cases; that is the responsibility of arbitral tribunals.

Well-known arbitral institutions include:

International Chamber of Commerce International Court of Arbitration (ICC)

　　Based in Paris, France

Singapore International Arbitration Centre (SIAC)

　　Based in Singapore

Hong Kong International Arbitration Centre (HKIAC)

　　Based in Hong Kong, SAR

London Court of International Arbitration (LCIA)

　　Based in London, United Kingdom

The Japan Commercial Arbitration Association (JCAA)

　　Based in Tokyo, Japan

In selecting an arbitral institution, it is important to understand its rules and how these may compare with the rules of other institutions, as well as how the institution’s costs are calculated. GI&T lawyers can provide guidance in this respect.

2. The seat of arbitration

The seat of arbitration is the national jurisdiction that is the legal home of the arbitral proceedings. It is where, as a legal matter, the arbitral award in an arbitration is issued or “made.” It is very important that the arbitration seat be a contracting state to the New York Convention (discussed above) for purposes of recognition and enforcement of foreign arbitral awards.

The seat also determines which national courts have principal supervisory jurisdiction over an international arbitration and which national arbitration law applies to the arbitration and its procedures. Thus, it is important that: (i) the courts of the seat are familiar with international arbitration and have a good track record in rulings about arbitration-related cases, and (ii) the national arbitration law meets global standards. Again, lawyers from GI&T can offer guidance about these issues.

The seat of arbitration and the location of the arbitral institution are distinct. Thus, for example, parties may agree to have an arbitration administered under the rules of the Paris-based ICC while choosing Tokyo or Singapore as the seat of arbitration.

Also, the seat of arbitration often is, but need not be, the same as the place where arbitral hearings are held. For example, the seat of an arbitration may be Singapore while the arbitral hearing is held in Tokyo or online.

3. The language

The language of an arbitration is the language in which the arbitral proceedings are conducted (correspondence, conferences, written submissions, witness statements, hearings, etc.).

By definition, cross-border transactions and contracts involve parties from different countries who often speak different languages. As English is the primary lingua franca for cross-border business transactions, English is frequently (though not always) chosen as the language of cross-border contracts and thus of international arbitration.

If not agreed by the parties, the language of arbitration may be based on the language of the contract in which the arbitration clause is contained.

4. Note about the governing law

The governing law is the law applied in determining the substantive rights and obligations under a contract. The governing law is usually addressed in a separate contract provision from the dispute resolution clause.

The governing law of the contract and the law of the seat of arbitration need not be the same. Thus, for example, a contract may be governed by Japanese law while the designated arbitral seat is Singapore and thus the arbitral procedures would be subject to Singapore’s arbitration law.

Q7 | How are arbitrators selected, and is a sole arbitrator or a three-member tribunal preferable?

The method of appointing arbitrators is determined by the arbitration clause and the applicable institutional arbitration rules.

Where a sole arbitrator will preside over an arbitration, typically the parties will have an opportunity to try to agree on nominating a particular individual for this role, failing which the arbitral institution will select the sole arbitrator.

Where there is a three-member tribunal, each party (or party group) will have an opportunity to select a co-arbitrator, and the two co-arbitrators will try to nominate a third, presiding arbitrator, failing which the arbitral institution will select the presiding arbitrator.

A sole arbitrator is suitable for cases where the amount in dispute is relatively low and/or where the factual issues are relatively limited. As might be expected, a sole arbitrator is less costly than a three-member tribunal and also allows for easier scheduling in the procedural calendar.

A three-member tribunal provides the opportunity for a tribunal to have a range of expertise and legal experience. Three-member tribunals usually are recommended for cases where the amount in dispute is large and where the factual issues are numerous and complex and involve many documents.

The following points should be considered when selecting an arbitrator.

Experience with international arbitration and general reputation within the international arbitration community
Availability to devote time to a case and ability to conduct proceedings appropriately and expeditiously
Independence and impartiality
Understanding of the industry sector and the transaction concerned
Experience with the relevant law or legal system as well as commercial practice

Q8 | How do international arbitration proceedings typically progress?

The general flow of international arbitration proceedings is as follows.

Filing of a request for arbitration by claimant
Filing of an answer by the respondent
Appointment of arbitrator(s) and constitution of the arbitral tribunal
Determination of the arbitral procedure and timetable for submission of pleadings, document production, hearing, etc. at an initial case management conference among arbitrator(s) and parties
Submission of written pleadings and evidence
Document production, where required
Further submission of written pleadings and evidence
Oral hearing, including the examination of fact and expert witnesses where required
Post-hearing submissions and submissions on costs
Closing of the proceedings
Issuance of the arbitral award

How a given arbitral proceeding actually is conducted varies according to the arbitration rules, the parties’ agreement, the tribunal’s decisions, and the size and complexity of the case.

Not every arbitration case includes fact or expert witnesses. In addition, while most regular arbitration cases involve at least some document production, in expedited arbitrations where factual and technical issues are limited the tribunal may make its decision based only on the documents submitted by the parties.

Q9 | How long does it take to conduct an international arbitration?

The duration of international arbitrations varies from case to case, but an ordinary international arbitration may take between a year and a year and a half from the request for arbitration to the final award. Complex arbitration cases may take several years or more.

The principal factors affecting duration are the number and complexity of factual and/or technical issues, whether the arbitration proceeding is bifurcated, the volume of documentary evidence and scope of document production, the number and volume of parties’ submissions, the number of fact and/or expert witnesses, the time required to prepare for and conduct the oral hearing, and how the parties conduct themselves during the proceedings.

In expedited arbitrations under which a sole arbitrator is appointed, the number and length of submissions may be limited, and document production may be omitted. As a practical matter, an expedited arbitration usually would be expected to take well less than a year from the request for arbitration to the final award.

Q10 | What costs are involved in international arbitration?

The main costs of arbitration are as follows.

The administrative costs of the arbitral institution
The fees and expenses of the arbitrator(s)
The fees and expenses of legal counsel
Experts’ fees and expenses
Translation and interpretation costs
The cost of collecting and managing documents and electronic data
The cost of the oral hearing venue or of online systems

Arbitrators’ fees may be calculated on an ad valorem basis by reference to the amount in dispute or based on the time the arbitrators spend on a case, or a combination of both. The method of calculating arbitrator fees differs according to the arbitral institution and the applicable rules.

Among the various costs noted above, the total cost of an international arbitration case depends significantly on the fees and expenses of legal counsel, because attorneys’ fees and expenses typically account for most costs of an arbitration case.

The total cost of a given arbitration case also varies based on the number of arbitrators, whether the case is bifurcated, the number and volume of written submissions, the volume and complexity of document production, the number of witnesses and experts required, the extent to which translation is needed for documentary evidence and witness/expert statements/testimony, and the time required for hearing preparation and length of the oral hearing (and whether the hearing is in-person or online).

In a final award, the arbitral tribunal typically will determine the allocation of arbitration costs as between parties based on the outcome of the case (that is, which party prevailed), the parties’ procedural conduct (efficient or not), and whether the legal and other fees and expenses incurred were reasonable. A successful party in arbitration may but will not necessarily recover all of its costs.

Q11 | Can we require the counterparty to produce documents in an international arbitration?

Usually a regular arbitration case will involve at least some document production, that is, a process where the parties may request relevant and material documents not in their possession from the counterparties.

Typically, document production in arbitration is relatively focused compared with the broad discovery in United States litigation. Parties in arbitration are required to request the production of specific documents or of a narrowly defined category of documents held by the counterparty. The requesting party must explain the relevance of the documents to the issues in dispute and their materiality to the arbitration’s outcome, as well as the reasons for believing that a counterparty possesses the requested documents.

If the parties disagree whether or not certain requested documents are relevant and material and should be produced, the arbitral tribunal will decide and may order production of the documents.

Q12 | Is the content of an international arbitration kept confidential?

As a rule, proceedings in international arbitration are not open to the public in the way that court proceedings often are. This confidentiality therefore makes it easier to limit the risk that commercial contract terms, sensitive technical information, trade secrets, or even the existence of a dispute between companies will become public during arbitration.

However, the scope of the confidentiality obligations imposed on the parties, counsel, witnesses, and experts may differ according to the relevant institutional arbitration rules, the law of the seat, orders of the tribunal, and the agreement of the parties.

In addition, when parties use national courts to try to set aside or enforce an arbitral award (see immediately below), details of the dispute and arbitration case may become public.

Q13 | What happens if we are dissatisfied with the award, or if the counterparty does not pay?

An arbitral award cannot be subjected to a complete reconsideration of the factual findings and conclusions of law in the way that an appeal may allow in national court litigation.

Rather, after an arbitral award is issued involving payment of damages by one party to another, there are three possible next steps: (i) the losing party voluntarily pays the winning party; (ii) the losing party seeks to set aside (or nullify) the award in the seat of arbitration; or (iii) the losing party does not voluntarily pay and the winning party seeks to have the arbitral award recognized and enforced in a jurisdiction where the losing party has assets.

"Recognition" means acknowledging the legal effect of the arbitral award. "Enforcement" means compulsory recovery, on the basis of the award, from the counterparty’s bank deposits, real estate, or other property. It is important to consider at an early stage not only how to win an arbitration case, but also to consider whether and where a counterparty may have assets, whether there is a risk that assets may be transferred, and whether the counterparty is at risk of insolvency.

Because of the pro-arbitration terms of the New York Convention (and the incorporation of this treaty into national arbitration legislation), national courts set aside or refuse to recognize and enforce arbitral awards only in limited cases: for example, where the arbitration agreement is invalid, where a party was not given an adequate opportunity to present its case, where the tribunal exceeded its authority, or where the award is contrary to a country’s public policy.

Q14 | Can we urgently stop the counterparty from disposing of assets or destroying evidence?

If a counterparty may be trying to dispose of or transfer assets or destroy evidence, possible options include seeking interim measures ordered by the arbitral tribunal and/or court-ordered attachment or injunctive relief.

In such circumstances, many institutional arbitration rules permit an application to the arbitral tribunal for an order of interim protective measures such as the preservation of assets or evidence, maintenance of the status quo, or the cessation of certain conduct.

Further, even where a dispute between parties is to be resolved by international arbitration, it may still be possible to apply to a national court for interim relief in the form of an injunction or attachment. Court proceedings may be particularly suitable where assets need to be preserved quickly or where coercive effect against third parties is required.

In Japan, the amended Arbitration Act, which came into force on 1 April 2024, introduced a system under which certain interim measures ordered by an arbitral tribunal may be enforced once a court has issued a decision granting permission for enforcement.