Arbitration offers an alternative to going to court, allowing disputes to be resolved privately by one or more arbitrators chosen by the parties. It is often preferred for its confidentiality, speed, and the ability to appoint experts in complex or technical matters. It is also widely used for resolving cross-border disputes involving parties from different jurisdictions and different applicable laws.
For many businesses, the decision to start arbitration feels like a logical next step when a serious dispute arises, if there is an arbitration clause in the relevant contract. After all, if negotiations have broken down and the contract includes an arbitration clause, what else is there to do?
But the truth is that commencing arbitration is not always as straightforward – or as beneficial – as it might first appear. In a desire to resolve the dispute as swiftly as possible, key factors are sometimes overlooked: costs, enforceability, the strength of available evidence, and even whether arbitration is the best tool for the situation.
Most directors and CEOs are not legal experts, and they are not expected to be. Yet starting arbitration without a clear-eyed understanding of the bigger picture can lead to surprises – some of them expensive ones for the business.
Below are practical tips to help business leaders and decision-makers think strategically before initiating arbitration, enabling them to make smart, informed choices while avoiding unnecessary delays and costs.
Question No. 1: Is Arbitration the Right Forum for the Dispute?
Before commencing arbitration, it is important to consider if it is really the right way to handle the dispute. While arbitration can be beneficial, offering advantages like confidentiality, flexibility, and enforceability, it does not necessarily fit every situation.
Begin by closely examining the contract, with particular focus on the dispute resolution clause. Some agreements mandate arbitration, while others permit alternative methods such as mediation. If the matter is criminal in nature, arbitration should typically be avoided.
If arbitration is explicitly required, that process will typically need to be followed. However, if the language is ambiguous or open to interpretation, additional options may be available before committing to a specific course of action.
In addition to following the contract, think about these important questions:
- Is this dispute suitable for arbitration? Arbitration is suitable for disputes requiring specialised knowledge or privacy. However, it may be less appropriate for disputes that demand urgent court intervention (such as injunctions) or where transparency and public accountability are important.
- Are there better alternatives? In some instances, negotiation or mediation may resolve the dispute more quickly and cost-effectively without the need to initiate arbitration. Alternatively, litigation before a national court may provide stronger interim measures, access to broader discovery, or other procedural tools that arbitration lacks.
Carefully weighing these considerations can assist in determining the most appropriate path forward.
Question No. 2: Are There Any Procedural Obstacles to Commencing Arbitration?
Even when a contract contains an arbitration clause, immediate filing may not be appropriate. Before initiating formal proceedings, it is important to examine the dispute resolution clause with attention to procedural preconditions. Many agreements require specific pre-arbitration steps to be completed prior to commencing arbitration. Failure to comply with these steps can lead to significant consequences, such as delays, increased expenses, or dismissal of the claim on procedural grounds.
Common preconditions may include:
- Amicable settlement attempts within a fixed period.
- Mediation or structured negotiation.
- Dispute boards or adjudication procedures, especially in the context of FIDIC construction contracts and other infrastructure agreements.
These steps are often more than mere recommendations – they may be enforceable requirements. Failure to comply with clearly mandatory provisions will typically prompt the opposing party to challenge the tribunal’s jurisdiction or raise procedural objections, potentially increasing costs and causing delays. Multi-tiered dispute resolution mechanisms are especially common in construction, energy, and infrastructure disputes, particularly when FIDIC contracts are involved.
FIDIC’s dispute resolution model typically includes several binding preconditions:
- Notification requirements within strict time limits (typically 28 days) to preserve claims;
- Referral of disputes to the Dispute Adjudication Board (DAB);
- A waiting period following the DAB decision or notice of dissatisfaction before arbitration can be commenced.
Failure to comply with any of these steps can be fatal to a claim. For instance, if a party does not submit a notice of dissatisfaction within the specified window after a DAB decision, the outcome becomes final and binding, even if it is unfavourable. Moreover, a failure to refer the matter to the DAB before arbitration can lead to jurisdictional objections or a dismissal of the claim entirely.
Therefore, before commencing arbitration under a FIDIC contract, verify that each step has been followed precisely. If the DAB was not in place, consider whether the failure was due to the counterparty’s refusal to cooperate (which might excuse non-compliance), and document this in detail.
Question No. 3: What Are the Costs of Arbitration and Are They Worth It?
Before initiating arbitration, it is important to carefully assess the financial implications. Although arbitration is frequently promoted as a faster and more cost-effective alternative to litigation, it can still involve significant expenses, particularly in complex or high-value disputes (for more information, see Costs of Arbitration).
Although the costs of international arbitration are often recoverable from the losing party, committing substantial resources upfront is not always a prudent business decision, particularly when returns may take years to materialise or may never be recovered if the respondent becomes insolvent.
Costs in arbitration can be broken down as follows:
- Arbitral Tribunal’s fees – These are usually shared between the parties and can vary depending on the arbitral institution, number of arbitrators, and the amount in dispute; typically, having a sole arbitrator in smaller, less complex disputes is advisable as the costs are lower.
- Institutional fees – When arbitrating under rules such as those of the ICC, LCIA, or SIAC, administrative fees will apply. The applicable fee schedules can be found on the respective institutions’ websites.[1]
- Expert fees – In many cases, the involvement of technical or quantum experts is required, particularly in construction, energy, or financial disputes. Expert fees can vary considerably depending on the complexity of the matter, the size of the expert team, and their geographic location.
- Hearing costs – These include room rentals, court reporters, interpreters, and sometimes travel and accommodation.
- Legal fees – Legal fees usually represent the largest portion of arbitration costs. These can be managed by selecting legal counsel with reasonable rates.[2] However, the reality is that building a strong case involves extensive legal work beyond just hearings. Arbitration lawyers are responsible for developing the overall legal strategy, conducting detailed factual and legal research, drafting pleadings and submissions, coordinating with experts, handling procedural matters, managing document production, preparing and examining witnesses, and ensuring compliance with the applicable rules and timelines throughout the proceedings.
It is also important to note that even a successful outcome does not guarantee full cost recovery. While most arbitration rules permit reimbursement for the prevailing party, tribunals typically have broad discretion and may award only a portion of the legal costs incurred.[3]
Question No. 4: Is There Sufficient Evidence and Documentation to Support a Successful Outcome in the Arbitration?
Initiating arbitration requires more than a firm belief that a wrong has occurred. It depends on the ability to prove the claim and recover the amounts sought. If the likelihood of success is low, pursuing arbitration is generally inadvisable.
Engaging counsel to prepare a legal memorandum on the merits of the claims is often a prudent step before initiating arbitration. Such analysis can identify weaknesses and assess the likelihood of success, helping to avoid costly proceedings with limited prospects. It also enables counsel to familiarise themselves with the facts and legal framework of the dispute, while giving the client an opportunity to evaluate the lawyers’ competence, responsiveness, and overall suitability.
Because arbitration is primarily a document-driven process, the outcome often hinges on the quality, clarity, and completeness of the documentary evidence presented, as well as how effectively that evidence is conveyed to the tribunal.
This is especially true in construction and infrastructure disputes, where progress records, variation orders, site instructions, project correspondence, and proper notices under the contract play a central role. Without a clear written project record, even a valid claim may fail, sometimes on purely procedural grounds.
Prior to commencing arbitration proceedings, ask:
- Is there sufficient documentary evidence to demonstrate what occurred and, ideally, to identify the party responsible?
- Are there signed contracts, amendments, invoices, correspondence, project logs, or other documents available to support the claims?
- Has compliance been ensured with all contractual notice requirements, such as those related to delay claims or cost overruns, particularly in construction disputes governed by FIDIC-based contracts?
It is also important to recognise that in many industries and jurisdictions, record-keeping practices can be inconsistent, with key documents dispersed across various teams or systems. Once a dispute arises, the time available to collect and organise the necessary evidence is often limited. This challenge is particularly pronounced in construction disputes involving the FIDIC Suite of Contracts, where timely access to well-maintained records is critical to building a persuasive case.
As explained above, FIDIC notice provisions require that contractors give prompt written notice of claims, often within 28 days of becoming aware of the event giving rise to the claim. These provisions are often considered strict conditions that must be met before the contractor is entitled to compensation or time extensions. Notice provisions often apply to:
- Delay and disruption events (e.g., unforeseen site conditions);
- Variations instructed orally or through informal channels;
- Force majeure and unforeseen circumstances;
- Instructions impacting time or cost.
Documenting and issuing notices on time and preserving evidence of these notices are essential. Best practices include:
- Using contractually compliant formats for notices;
- Maintaining a centralised project correspondence log;
- Ensuring notices are issued by authorised representatives and acknowledged.
Prudent contractors are recommended to develop a standard template for issuing notices and train their project teams to recognise triggering events. In arbitration, a tribunal will look closely at whether contractual obligations were met, and failure to comply with notice provisions may mean no compensation, regardless of the merits. When in doubt, a notice should always be issued if there is a possibility of a future dispute.
It is advisable to consider this from the outset and to maintain, or if necessary, establish an adequate documentary record of the project that can be relied upon to substantiate potential claims.
Question No. 5: Is the Counterparty Solvent, and Is Enforcement of an Arbitral Award Likely to Be Successful?
For most businesses, the ultimate objective is not simply securing a favourable award, but actually recovering the awarded sums. However, a successful award does not guarantee payment. In many instances, enforcement becomes a separate challenge, particularly when the losing party refuses to comply voluntarily or holds assets in jurisdictions where enforcement is legally or practically difficult.
Arbitral awards do not include an automatic enforcement mechanism. If the losing party fails to comply voluntarily, the award must be enforced through the courts in a jurisdiction where that party holds assets. Often, arbitration awards are enforced in multiple jurisdictions in order to increase the chances of recovery.
Understanding Recognition, Enforcement, and Execution of Arbitration Awards
- Recognition: This means that a court has officially acknowledged that an arbitral award is valid and can be enforced, preventing the opposing party from relitigating the same issues in another jurisdiction.
- Enforcement: Upon recognition, enforcement entails securing a court order that mandates the losing party to adhere to the terms of the award. This process may encompass actions such as asset freezes or injunctions.
- Execution: This is the actual implementation of the enforcement order, such as seizing assets to satisfy the award.
These steps can vary significantly depending on the enforcement jurisdictions.
The Role of the New York Convention
The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is the cornerstone of international arbitration. It facilitates the recognition and enforcement of foreign arbitral awards across its (current) 173 contracting Parties. Unlike domestic court judgments, arbitral awards can be enforced in nearly every country of the world. Under Article III, courts are obligated to recognise and enforce awards, subject to specific exceptions outlined in Article V, such as, inter alia:
- The invalidity of the arbitration agreement.
- Lack of proper notice to the parties.
- Awards dealing with matters beyond the scope of the arbitration agreement.
- Public policy considerations.
Practical Considerations for Enforcement of Arbitration Awards
Therefore, it is important to conduct a careful assessment of the following factors before commencing arbitration:
- Counterparty Solvency: Investigate whether the opposing party has sufficient assets to satisfy the award. If the opposing party is insolvent or has strategically moved assets, enforcement may be futile. While it can be costly, engaging an asset-tracing firm prior to commencing arbitration may help determine whether there is a realistic prospect of recovery. If there is a risk that assets may be moved, asset preservation orders, interim measures, or conservatory measures should be considered.
- Asset Location: Identify where the counterparty’s assets are located. Enforcement is typically pursued in jurisdictions where assets are present; local laws of that jurisdiction will govern the process.
- Time Limitations: Be mindful of statutory limitation periods for enforcement, which vary by country.
- Sovereign Immunity: When dealing with a State or State-owned entity, doctrines of sovereign immunity may protect them from enforcement actions. Nonetheless, many jurisdictions have exceptions to these protections, particularly concerning commercial activities.
- Public Policy Exceptions: Courts may decline to enforce an award if it violates the public policy of the enforcing jurisdiction. Although this is a limited exception, it can pose substantial challenges in specific jurisdictions.
Enforcement challenges are particularly important in cross-border disputes, emerging markets, developing economies, or disputes involving State-owned entities. Thus, while arbitration offers a streamlined dispute resolution mechanism, the enforceability of an award hinges on strategic planning.
Question No. 6: Has the Right Legal Team and Strategy Been Secured to Move Forward with Arbitration?
Arbitration is not just an alternative to State courts – it is a world of its own, with its own rules, expectations, and tactics. This also means it requires a different set of skills than traditional litigation.
The strategy adopted from the outset of a dispute can have a significant influence on the final outcome. Decisions made before commencing arbitration, such as how to frame the claims, which rules to apply, whether to seek interim measures, and how to select a suitable arbitrator, can shape the course of the proceedings and materially affect the prospects of success.
For this reason, it is essential to engage legal counsel with specific expertise in international arbitration, rather than relying solely on general litigators. An experienced arbitration team is equipped not only to guide parties through the entire arbitration process, but also to provide strategic advice at the pre-arbitration stage, ensuring that the matter is properly assessed and positioned before proceedings commence.
Additional Consideration: Is This the Appropriate Time to Initiate Arbitration?
Even with thorough preparation, including strong evidence and experienced legal counsel, it is important to consider whether the timing is appropriate to initiate arbitration. Timing can serve as a strategic advantage or, if misjudged, result in costly consequences.
Some key questions to ask include:
- Has the applicable statute of limitations been taken into account? Most jurisdictions have time limits for bringing claims. Missing a deadline, even by a few days, can render a case inadmissible.
- Are there ongoing settlement discussions? If there is a realistic chance to resolve the dispute amicably, initiating arbitration prematurely can escalate tensions and shut down negotiations.
- Are there broader factors at play, especially in cases involving States and State-owned entities? For instance, are there upcoming elections or political shifts that might affect enforcement or regulatory conditions? Are any anticipated changes in laws or market conditions likely to make enforcement easier or more financially advantageous in the future?
In some instances, the most prudent legal course of action is to defer initiating proceedings, provided that such delay does not jeopardise any legal rights. A well-considered strategic delay may create opportunities for more favourable outcomes, but it should only be pursued with a clear understanding of the associated risks and implications.
Conclusion: Adopt a Strategic Approach Before Initiating Arbitration
Arbitration can be an effective and powerful way to resolve business disputes – but only when approached with proper preparation and strategy. It offers confidentiality, flexibility, and enforceability across borders, but it can also be time-consuming and costly, especially when the case is complex, legal counsel does not possess the required skill or knowledge, or the strategy is poorly planned.
Before proceeding with arbitration, it is advisable to take a step back and conduct a thorough assessment of whether arbitration is the appropriate forum for the dispute. This includes ensuring that sufficient evidence is available, understanding the potential costs involved, and evaluating the likelihood of successful enforcement of any eventual award. The ultimate objective is not merely to initiate proceedings, but to resolve the dispute effectively, efficiently, and in a manner that enables recovery of the amounts claimed.
[1] Certain arbitral institutions have cost calculators on their websites. See, e.g., https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/costs-and-payment/costs-calculator/; see also the SIAC: https://siac-staging.cloudwps.net/fee-calculator
[2] At Aceris Law, we are committed to providing top-tier arbitration legal representation, striving to win every case for our clients while maintaining reasonable, transparent, and predictable fees. The cost calculator available here calculates the capped legal fees Aceris Law offers for commercial, construction, and investor-State arbitrations in exchange for a modest success fee or uplift component.
[3] See Arbitrators’ Discretion in Awarding Costs: Are There Any Limits?