New Zealand Law Society - Arbitration treaties could help settle international disputes

Arbitration treaties could help settle international disputes

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A new instrument that will make settling international disputes far more accessible – the Bilateral Arbitration Treaty (BAT) – will become a reality within three to four years, eminent international arbitration specialist Gary Born predicts.

Will they come to New Zealand in that time? “Optimistically yes,” he says.

Mr Born visited New Zealand earlier this month hosted by Victoria University’s New Zealand Centre for International Economic Law. While in the country, he talked with the Government and the business community about his idea of a BAT regime.

The BAT “provides a neutral dispute resolution mechanism – international arbitration – for international commercial disputes between businesses that operate in New Zealand and the territory of another state,” he says.

Under the treaty, if a commercial dispute arises, the default position will be that the dispute is resolved by arbitration. However there will be provision for people to make contracts that opt out of the default position.

These treaties, Mr Born says, “will promote international trade between especially (but not exclusively) New Zealand’s small and medium sized enterprises (SMEs) and the businesses of the treaty partner.

“It does this by reducing one of the most significant barriers to international trade for businesses: the costs and risks associated with dispute resolution, especially litigation.”

The BAT will sit comfortably alongside already existing free trade agreements as well as being able to operate as a stand-alone treaty between New Zealand and another state or states. In both cases, the BAT will be an additional tool fostering trade between New Zealand and another state or states.

“The basic concept of the bilateral arbitration treaty is that if you step back from the way international commercial disputes are currently resolved and ask yourself: ‘could we do that better?’ the answer is ‘yes’.

“The idea of parallel court proceedings producing two sets of legal expenses, conflicting judgments – neither of which can be enforceable – is a very unsatisfactory way to resolve disputes.”

An alternative was to include arbitral agreements in international contracts, but that was something that was frequently not included in contracts, particularly contracts entered into by SMEs.

“The default mechanism of the bilateral arbitration treaty is a better way to do it,” Mr Born says.

A BAT would do two things.

“It would provide a boost to international commerce because companies would have less legal uncertainty and risk than exists under the current mechanism.

“Secondly, and just as importantly, companies engaging in cross-border trade would be subject to less unfairness and fewer inequities than can arise under the current system,” he says.

“A company from a place like New Zealand can face a very real prospect of profoundly unfair results under the current system.

“Part of the concept behind the bilateral arbitration treaty is that not only it encourages foreign trade by reducing uncertainty, but it reduces unfairness by reducing some uncertainty.

“As New Zealand’s cross-border investment increases, with it comes necessarily an increase in the number of international disputes.”

BATs amelioriate the many problems that can arise in cross-border disputes by:

  • prescribing a neutral dispute resolution mechanism, thus avoiding the costs associated with New Zealand businesses familiarising themselves with dispute resolution procedures with their trading partner state;
  • prescribing a uniform and neutral procedure that sits independent from any national law. Proceedings that run according to a well-settled and a national set of rules, which the businesses can vary by agreement, will instil a greater sense of trust in the outcome;
  • providing for resolution of disputes by arbitrators chosen for their neutrality, objectivity and expertise for the parties’ dispute by a highly-regarded independent arbitral institution;
  • allowing for the straightforward enforcement of dispute resolution procedures and awards pursuant to principles based on of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958; and
  • enabling counsel local to each business to represent that business throughout the dispute. This reduces the need for businesses to brief multiple counsel, thus substantially reducing the cost of resolution.

The BAT will offer SMEs and other businesses a number of additional significant benefits, including the following:

  • it provides significant scope to tailor procedure to the needs of the businesses and the characteristics of the dispute, this enables businesses to follow a procedure that is appropriate for the dispute at hand, as well as better control their costs; and
  • relative to court proceedings (in most countries) the time taken to resolve a dispute is short.
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