Emerging technologies and the benefit of International Arbitration clauses

In the last decade, technology has evolved to completely overhaul traditional business models. For example, UBER is the largest taxi company in the world, and yet owns no taxis; a digital currency which operates independently of banks is currently dominating headlines; and the CEO of online shopping giant Amazon has been named the richest person in the world for the second year in a row.

Technology, Media and Telecoms (TMT) companies no longer have to be giant corporations to transcend international borders, with the rise in social media providers ensuring that even the smallest of ventures has an international platform.

In a 2016 survey of international TMT companies, 71% of Telecoms respondents had experienced more than 20 disputes, and 83% said that their largest dispute was for more than US$100million.¹ Despite 79% of respondents identifying data and security system disputes as being either ‘very likely’ or ‘somewhat likely’ in the next 5 years,² a quarter of TMT respondents indicated they do not have any kind of dispute resolution policy.³

So what happens when things go wrong?

Buried in the contracts and terms and conditions of most TMT companies, you are likely to find a dispute resolution clause. Traditionally, this clause would favour the service provider, and require contractors or consumers to initiate legal proceedings in the service provider’s home jurisdiction. Nowadays, where it is commonplace for service providers and consumers to be separated by continents, court litigation is the least desirable method of dispute resolution.⁴ This is due to the potential difficulty in enforcing court orders in foreign jurisdictions, a lack of confidentiality, or the uncertainty that comes with litigating in an unfamiliar legal system.

International TMT companies are increasingly recognising the importance of reputation management – how they are perceived and how they respond to threats to their reputation are vital elements of their brand.⁵ It is not a good PR move to require consumers to travel internationally to take up a serious dispute, nor is it desirable for a company to be fighting various legal battles in various jurisdictions, with various rules of procedure.

Arbitration transcends borders

International arbitration is a prime alternative to dragging disputes through foreign law courts. This alternative dispute resolution mechanism is a process by which parties to a dispute agree in advance to have that dispute determined by a neutral third party, according to agreed rules of procedure, in the form of a confidential final and binding decision, known as an award. The parties can agree on the process of appointing an arbitrator(s), and the award can be enforced in almost 160 jurisdictions in the world.

An arbitration is international when the parties to an arbitration agreement are located, or have their places of business located, in different countries. In the 2016 survey of TMT companies, 92% of respondents agreed that international arbitration is well suited for TMT disputes,⁶ and 82% believed there will be an increase in the use of international arbitration in the future.⁷ International TMT companies agreed that the advantages of international arbitration include procedural flexibility, enforceability of the award in multiple jurisdictions,⁸ the ability to avoid a foreign jurisdiction, expertise of the decision maker, and confidentiality.⁹

What does ‘place of arbitration’ mean?

There is a common misconception that the ‘place’ of an international arbitration means that the parties to a dispute must travel to the ‘place’ to have the dispute determined by arbitration. This is not the case.

Under the UNCITRAL Model Law on International Commercial Arbitration,¹⁰ the ‘place’ of arbitration is the same as the ‘seat’ of arbitration.¹¹ Both terms relate to the legal system by which the arbitration is conducted, and the judicial basis of the arbitration award. Put simply, parties to an international contract can choose which legal system they want to apply to the procedure of any arbitration that arises out of the contract. This could be the legal system in Amsterdam, or London, or Sydney, and is known as the ‘place’ or the ‘seat’ of the arbitration. The ‘seat’ of the arbitration does not change even if the arbitration is physically conducted somewhere other than the place of the arbitration.¹² For example, an international arbitration clause in a contract can nominate Amsterdam as the ‘place’ of the arbitration, and the arbitration could be physically conducted in Sydney, using the rules of the Amsterdam legal system, as is the case with the terms and conditions for UBER.

There appears to be a trend in international tech providers incorporating international arbitration into dispute resolution clauses in contracts without nominating a ‘place’, or ‘seat’ of arbitration. When including an international arbitration clause in a contract, it is important that the parties nominate a ‘place’ of arbitration so that the juridical home of the arbitration is clear.

Enforcing arbitration awards

As mentioned above, arbitration awards are enforceable in most jurisdictions worldwide because, at the time of writing, 159 countries have signed up to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the ‘New York Convention’. This means a party who has obtained an arbitration award in its favour can enforce the award in any convention country jurisdiction where the other party has assets. Courts in convention countries have very limited grounds on which they may refuse to enforce awards such as breach of natural justice or the award is contrary to the public policy of the state in which it is being sought to be enforced.

Scope for future disputes

With the evolution of technology disrupting the traditional business model, it is important for TMT companies to ensure they are adequately protected by their contracts and terms and conditions of service.

Consider the location of your consumers and contractors. Is your company providing services to consumers in foreign countries, or dealing with contractors based overseas? If so, it may be advisable to include an international arbitration clause in your contracts and terms and conditions of service, to ensure that any disputes are dealt with by international arbitration and to ensure that your rights and remedies are enforceable across multiple jurisdictions.¹³

For assistance ensuring your contracts and terms and conditions place your company in the best position for international dispute resolution, please contact us.

¹ _{School of International Arbitration, Queen Mary University of London, Pinsent Masons LLP, International Dispute Resolution Survey: Pre-empting and Resolving Technology, Media and Telecoms Disputes (2016), 14.}

² _{Ibid, 16.}

³ _{Ibid, 18.}

⁴ _{Ibid, 7.}

⁵ _{Ibid, 13.}

⁶ _{Ibid, 7.}

⁷ _Ibid.</sub

⁸ _{Ibid, 26.}

⁹ _{Ibid, 7.}

¹⁰ _{UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006).}

¹¹ _{UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006), Schedule 2 Article 20; PT Garuda Indonesia v Birgen Air [2002] 1 SLR(R) 401 at 407; Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (LexisNexis Butterworths, 1st ed, 2012), 208.}

¹² _Ibid.

¹³ _{School of International Arbitration, Queen Mary University of London, Pinsent Masons LLP, International Dispute Resolution Survey: Pre-empting and Resolving Technology, Media and Telecoms Disputes (2016), 6.}

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.