The importance of arbitration clauses in international trade
Individuals or companies engaged in international trade need to understand the importance of ensuring that their standard terms and conditions include a well drafted arbitration clause, especially when trading with non-EU customers. This is important even in contracts that contain a UK exclusive jurisdiction clause and an applicable law clause.
There are many countries that simply do not recognise UK judgements. China and South Africa are but two examples, yet both are significant trading partners of the UK. This means, that even if you go to the extent of pursuing a non-paying customer through the courts, any judgement obtained may not be worth the paper it is written on, as it may be unenforceable in the debtor’s home country where its assets are most likely to be.
The solution to this problem is to be found in the New York Convention. Under this convention, all signatory countries have agreed to enforce foreign arbitral awards. One can easily google for a list of the signatories to the convention, and the countries who have failed to adopt it are now the exception than the norm.
This gives international commercial arbitration a huge advantage, offering all parties the ability to choose a neutral forum and preferred legal system. It also offers specialist decision makers, comparative absence of bureaucratic and costly procedures, and confidentiality.
The New York Convention creates a uniform international framework, which enables parties with international commercial arbitration agreements to enforce foreign arbitral awards with relative ease. It achieves this by:
- Requiring the courts of a signatory State or country (referred to as a “Contracting State”) to recognise and enforce an award rendered in another Contracting State.
- Limiting the grounds upon which the courts in Contracting States may refuse recognition and enforcement of foreign arbitral awards.
By contrast, the registration and enforcement of foreign court judgments is only available where individual States have created legislation to reciprocate enforcement of foreign judgments. This process is less certain and less consistent than the New York Convention.
A well drafted arbitration clause is therefore a vital tool in cross border credit control, for the peace of mind of all parties. If you wish to discuss a business transaction with us, and ensure that you are protected should disagreements arise, then make sure you click here to contact us.