Arbitration and trade dispute resolution

by Teresa Acklin
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   This article was prepared specially for World Grain by John M. Reams, a partner in the Kansas City, Missouri, U.S., office of an international law firm, Bryan Cave. Mr Reams is a specialist in international trade in commodities.

   This is the first in a series of articles that will analyze: 1 — key terms and provisions in use worldwide in the trading of agricultural commodities; 2 — the interpretation of those terms by arbitrators and courts; 3 — transactions of growing importance to commodity traders, such as barter and countertrade, long-term supply agreements and joint ventures; and 4 — laws and regulations that affect trade in commodities.

   The approach will be practical and pragmatic. The primary purposes of the articles will be to facilitate trade and assist in avoiding disputes by providing information that will allow traders and others to act with full knowledge and understanding of essential terms, and to explore alternative ways of conducting trade. The information that will be provided regarding the terms of trade may be of particular interest to traders in those countries that have recently privatized the commodity importing and exporting functions.


   Traders are reluctant to submit the resolution of their disputes to judges who have no practical experience in trading; consequently, their contracts often incorporate arbitration provisions. It is appropriate, therefore, that the first article in this series will review the basic principles of arbitration applicable to the resolution of disputes in international trade in commodities.

   While it is undeniably difficult to generalize about rules and procedures applicable to arbitration, since they will be determined by the terms of the arbitration provision and the law that governs the arbitration, there are some general principles that apply. Arbitration began as an informal, ad hoc means of dispensing rough justice; but, it has evolved into a serious, widely accepted alternative to litigation as a means of resolving international trade disputes. Arbitration is voluntary; but, once parties to a contract agree to arbitrate, their agreement is generally enforceable in court. After some initial skepticism, courts now favor arbitration and are reluctant to second guess the decision of an arbitration panel with the result that there is no appeal to the courts from an arbitration award except under extraordinary circumstances.

   Arbitrators may be chosen by the parties or by the association under whose auspices the dispute is being arbitrated, depending upon the terms of the arbitration provision. However they may be chosen, they are usually required to be engaged in or experienced in international trade. Where an arbitration is held depends upon the terms of the arbitration provision, but it will usually be at a neutral site to ensure a fair result. London, New York, and Paris are favorite sites for international arbitrations.


   Arbitrations are commenced by one party to the contract filing a complaint and demanding arbitration against the other party and, if he is required, by naming his arbitrator. The time for commencing an arbitration and the manner of appointing the arbitrator will be subject to time limits and procedures, which, if ignored, may cause the noncomplying party to lose his right to appoint an arbitrator or even make a claim through arbitration or otherwise. Time limits and procedures, in other words, must be strictly observed.

   Arbitrators are not bound to follow legal precedents in reaching a decision, and the importance of the law as a guide varies from panel to panel and case to case. In some cases, the answer to the dispute is found in the terms of the contract itself; while in others, the law or trade custom may be decisive.

   Parties are not required to have a lawyer plead their case, but in important cases, parties are usually represented by counsel. Although witnesses are sworn and a court reporter is usually present, arbitration is informal. Parties are allowed to present their cases with few restrictions, with the result that evidence is received that would not be received in court.

   As I have noted, there is either no right or a very limited right of appeal to the courts of the panel's decision, and a losing party may have no alternative but to pay an award, even though the arbitrators were wrong. That can also happen in court, but the appeal process provides additional protection. Participants in arbitration, however, even when they are unhappy with the result, seldom regret the lack of a legal appeal.

   Arbitration serves an important function in international trade by providing a means by which commercial disputes can be resolved relatively inexpensively before a panel of arbitrators who are knowledgeable about international trade. Those features make arbitration an attractive alternative to litigation for traders.