On April 13, 2023, the United States Court of Appeals for the Eleventh Circuit overturned decades of precedent in determining the grounds that can be asserted to vacate an arbitral award governed by the New York Convention (the “Convention”). The Eleventh Circuit in Corporación AIC v. Hidroelectrica Santa Rita, sitting en banc, held that in a case under the Convention where the United States is the governing jurisdiction, the grounds for vacatur of a domestic award are set out in domestic law, currently Chapter 1 of the Federal Arbitration Act (“FAA”). In doing so, the Eleventh Circuit overruled the two prior controlling cases on the issue and settled a circuit split, realigning their opinions with that of its sister circuits. This decision—which expands the grounds for challenging arbitration awards beyond those provided in the Convention—could have significant implications on parties choosing the Eleventh Circuit as the seat of arbitration moving forward.
Arbitration is quickly emerging as one of the preferred methods for dispute resolution in the United States. The pros and cons of domestic arbitration are well known, and at times hotly contested. While many of the same arguments apply to international arbitration, in the context of cross-border business transactions, international arbitration can provide the neutrality, predictability, enforceability, and efficiency that is critical to achieving a just outcome.
Neutral Site and Predictability
International Arbitration provides a neutral forum for dispute resolution, thereby avoiding even the perceptions of ‘home court advantage’ that often times complicate selection of domestic courts. Often times, a dispute that crosses international boundaries is potentially subject to jurisdiction in more than one country. Parties may have concerns about navigating unfamiliar legal terrain or bias in another party’s home jurisdiction. Under traditional litigation, usually one party gets to decide where, and under what laws, the litigation will be resolved. Even if parties agree to a forum selection and choice of law clauses ahead of time, inevitably one party is likely to be disadvantaged by local procedures and/precedents in the chosen venue. While these advantages and disadvantages are part of general litigation strategy, they are often barriers to fair and effective dispute resolution.
International arbitration provides parties the opportunity to choose where the arbitration will take place, what laws will apply, and even the makeup and nationalities of the arbitrators. From there, parties will know what to expect in term of pleading rules, discovery procedures, and the types of damages and other remedies that are available. Most importantly, both parties will be given the same set of circumstances to arbitrate under, without substantial advantages given to either party. International arbitration allows disputes to be decided on the merits without influence from potentially biased judiciaries, disadvantageous procedural technicalities, and other issues that muddy the waters in traditional litigation.
In addition to providing an opportunity for neutrality that is not always available through traditional litigation, international arbitrations provide invaluable predictability to both parties. One of the biggest issues that arises in international litigation is the uncertainty that comes with navigating a foreign judicial system. Rules and procedures governing what claims may be brought, the discovery process, the trial itself, and remedies vary widely across jurisdictions. When parties agree to arbitrate an international dispute, they have the opportunity to create certainty and predictability in how the dispute will be resolved. The location of the arbitration and the rules governing the arbitration will be agreed upon prior to the dispute arising. The parties will have an opportunity to assemble an agreed-upon panel of fair minded individuals with alleviates the fear of being subject to the whims of a foreign judicial system. Parties in international arbitration have much more control over the length of the process without having to worry about a backlogged court-docket and other procedural delays that often cause traditional litigation to go on for years. Overall, international arbitrations provide parties with the resources to maintain control over their own disputes in many ways that traditional litigation does not.
An Increased Likelihood that Judgments are Enforceable
The Convention on the Recognition and Enforcement of Foreign Arbitral Award (otherwise known as the “New York Convention) provides a straightforward mechanism for enforcement of international arbitral awards. Over 150 countries have ratified the Convention and it provides a guarantee a mechanism that allows, and encourages, courts within the various signatory countries to enforce an international arbitration clause and award. This level of comity provides a significant benefit over the difficulties faced when seeking to enforce a foreign-court judgment. For example, a judgment from a United States court is not automatically enforceable in other countries – even those with similar legal traditions. A claimant may have to go through a second series of expensive and time-consuming litigation just to prove that the judgment should be enforceable in the foreign jurisdiction. An award secured in international arbitration however, provides more security to the prevailing party that they will be able to recover their award no matter where they need to enforce the judgment.
Pick the Panel
When parties decide to resolve their dispute through international arbitration, one of the key benefits is the ability to appoint arbitrators with relevant expertise. This removes a lot of the variability seen when presenting cases before judges and juries who may not be well-versed in the subject matter of the dispute. The presence of subject matter experts on the tribunal usually provides assurance to the parties that their claims are being adjudicated properly and fairly and reduces the need for appeals based on incorrect findings.
Affordability and Efficiency
While the affordability and efficiency of arbitration versus domestic litigation can be hotly contested, many of the rules and forums common to International Arbitration provide at least the possibility for significant cost and time benefits. When viewed in contrast with the American legal tradition, this is particularly so given the lack of expensive pre-trial discovery and post-trial appeals that are prevalent in many US jurisdictions and which may prolong a case for years. Under an arbitration agreement, parties are encouraged to move through the process quickly with a panel of arbitrators dedicated to their case. For example, the International Chamber of Commerce Rules of Arbitration offer an expedited procedure in cases where the amount in dispute does not exceed $2 million. This is meant to streamline the arbitration process and keep costs low. Unfortunately, in traditional litigation, there is not a similar mechanism in the United States or other jurisdictions. After an arbitration has ended and the tribunal has issued a final award, that dispute is usually over. Challenges to arbitral awards are also generally more limited than domestic court judgments. In addition, parties in international arbitration proceedings are often awarded reimbursement of their attorneys’ fees and other arbitration costs which has the potential to make arbitration an even more affordable option.
Resolving an international dispute does not have to be a lengthy, confusing, or expensive endeavor. Parties engaged in international business transactions should consider that agreeing to arbitrate can keep costs manageable while moving the dispute along efficiently with fairness and predictability.
As continued legalization of cannabis across jurisdictions in the U.S. and foreign countries causes the industry to become increasingly lucrative, determining proper avenues for dispute resolution controlling underlying agreements and investments has become a critical consideration for business-owners and foreign investors alike. Foreign investment in businesses involving cannabis is subject to a complex web of oversight that could include any combination of local and foreign laws, agreements, regulations, and practices. Many foreign investors in the cannabis industry have turned to international arbitration as a method for navigating these complexities and resolving disputes that may arise from such investments and business relationships. This post explores high-level considerations for foreign investors in the cannabis industry when assessing the viability of arbitration as a means for dispute resolution.