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The rule of law

THE phenomenal growth and the increasing complexity of international trade in

recent years has resulted in arbitration becoming the prefered method to settle international

commercial disputes. International contracts entered into in Cambodia are no exception.

It is now customary to include, in an international commercial contract, an arbitration

clause whereby the parties agree to submit any dispute to one or more individuals

chosen by them. Even in the absence of such a clause, the parties may still, after

a dispute has arisen, refer it to arbitration by means of a special submission or

agreement.

The increase in the number of arbitrations of international trade disputes has also

been stimulated by the preparation and adoption by public and private international

organizations of special conventions and model laws and rules dealing with various

aspects of international commercial arbitration. Some of these have been implemented

by domestic legislation in many countries. Thus, any entity involved in international

trade should become familiar with international commercial arbitration.

TYPES OF ARBITRATION

An arbitration may either be ad hoc or institutional. In the case of an ad hoc

arbitration, the parties initiate and proceed with the arbitration without the help

of a permanent arbitral institution. Together with the arbitrators, they control

the arbitration.

In the case of international commercial arbitration, disputes are more often referred

to supervised institutional arbitration where issues are decided by reference to

the arbitration rules of that particular institution. There are more than fifty general

purpose institutions in the world that administer this process. Many more are special

sector institutions. The best known of the general purpose institutions include the

International Chamber of Commerce International Court of Arbitration, based in Paris,

the American Arbitration Association, in New York and the London Court of International

Arbitration.

ADVANTAGES

The advantages of international commercial arbitration are numerous but, on occasion,

may depend upon the circumstances. Because the ability of the parties to determine

the basis by which their contract will be interpreted is the very foundation of arbitration,

the parties may choose flexible procedural rules, the applicable substantive law,

a convenient place for arbitration, a language understood by both, and most importantly,

arbitrators known for their objectivity, skill and expertise in the subject matter

of the dispute. The involvement of the courts is minimal, especially in the case

of institutional arbitration.

Secrecy, confidentiality and often low costs are other positive attributes of international

arbitration. The easy enforceability of arbitration agreements and awards in most

parts of the world is also an important consideration as it allows the parties to

achieve greater certainty and predictability. Speedy resolution of the dispute is

often cited as another advantage of arbitration provided there is no obstruction

on the part of one of the parties and the alternative judicial process is inadequate.

ENFORCEMENT

For international businesspeople, it is very important to determine whether an

international commercial arbitral award will be enforceable in the jurisdiction where

the other party resides or maintains their assets should that party refuse to comply

with the terms of the award.

Most developed nations, and a large number of developing nations including Cambodia,

are parties to the 1958 United Nations Convention of the Recognition and Enforcement

of Foreign Arbitral Awards, normally referred to as the "New York Convention".

The major purpose of the New York Convention is to facilitate the recognition and

enforcement of foreign arbitral awards and afford some predictability in that area

of private international law which has the potential to render international arbitration

meaningless. While there are differences in the ways that the signatory countries

interpret their obligations under the New York Convention, and distinctions made

in the local implementing legislation, generally the convention has allowed international

arbitration to be a working means of resolving international trade disputes. The

enforceability of international arbitral judgments in Cambodia remains in question

as the Kingdom has yet to enact legislation to put into force the provisions of the

New York Convention. The Royal Government has expressed hope that a working system

of arbitration can be put into place to function together with the remaining elements

of the Commercial Code that are now being drafted. One part of such a system must

be to provide a legislative base for enforcement of both foreign arbitral judgments

in Cambodia and Cambodian arbitral judgments internationally.

COSTS

It has been said above that one of the advantages of international arbitration

is often its low cost when compared to litigation through courts. This is not always

the case and should be considered on an individual basis for each transaction. In

general, the costs of arbitration comprise the fees and expenses of the arbitrators,

the administrative expenses for conducting the arbitration, the legal costs of presenting

the arguments, and, in some instances, the fees and expenses of the experts or witnesses.

If the losing party refuses to comply with the terms, additional costs may be incurred

to force compliance. In their award, the arbitrators decide which costs are to be

borne by the parties and in what proportion.

Costs may be quite high if an arbitration is lengthy and complicated but the costs

of institutional arbitration are generally predictable as they are usually set according

to a schedule. For instance, in the case of the International Court of Arbitration

of the International Chamber of Commerce, the administrative charges as well as the

fees of the arbitrators are based on the amount in dispute in each case. This method

permits a party to estimate the costs of an arbitration before it begins. It also

discourages inflated claims or counterclaims. Even if a case becomes more complex

than foreseen, there will be no increase in administrative charges. The costs are

paid out of an advance on costs payable equally by the claimant and the defendant.

The arbitrators will not proceed until this advance on costs has been satisfied.

Cambodian government officials have been quoted as saying that they would never personally

enter into an international commercial contract in Cambodia that did not contain

an international arbitration clause. Their sentiments are echoed by a growing number

of businesspeople involved in international trade in the world today, regardless

of where they are conducting business. When negotiating commercial contracts it is

obligatory to ask yourself what will happen should a dispute arise during the life

of the contract. How will the problem be resolved if it cannot be solved by compromise

and good faith efforts by the parties? Often the most attractive option for foreign

investors and local businesspeople conducting international trade will be international

commercial arbitration.

- (Michael Popkin is a partner of Dirksen Flipse Doran & Le an international

law firm with offices in Cambodia, Laos and Vietnam.)

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