Worldwide: International Arbitration And Why It Matters For Italians Doing Business Abroad

Last Updated: 25 October 2018
Article by Eleni Polycarpou and Camilla Gambarini

The onset of globalisation has allowed many Italian entrepreneurs and companies to expand their businesses outside of Italy. Cross-border investments and transactions have presented many new opportunities. However, with increased globalisation, it is important for Italian companies to be alert to the risks of potential disputes with foreign counterparties.

When a dispute arises, resorting to foreign domestic courts is unlikely to be the best option for Italian companies. The risks range from judges who may be unfamiliar with foreign applicable law to bias, lack of judiciary's independence and impartiality, lengthy proceedings, corruption and even bribery. In addition, litigating in foreign courts involves having to deal with the uncertainties of unknown legal systems, which increases costs of proceedings.

An alternative to litigating in foreign domestic courts is international arbitration. International arbitration represents a meaningful and efficient way of solving cross-border disputes. It is currently the number one dispute resolution method for multi-jurisdictional commercial disputes. The advantages include:

  • Confidentiality of international arbitration proceedings;
  • Flexibility and neutrality of international arbitration proceedings;
  • Independence and impartiality of arbitrators; and
  • Advantages of arbitral awards' enforcement.

Confidentiality of international arbitration proceedings

The increased value of intangible assets, such as patents, trademarks, and copyrights, make confidentiality one of the most important concerns of Italian companies exporting "made in Italy" and IT products in a globalised market. Similarly, Italian auction houses, galleries or art collectors may have valuation concerns and would therefore not want the details of an art related dispute to be exposed in public proceedings. The advantage of international arbitration proceedings is that they may be held in private without the risk of exposing a company or sensitive details to a public hearing. This enables the parties to reach a satisfactory settlement because the value of the asset in dispute remains unaffected by adverse publicity.

Flexibility and neutrality of international arbitration proceedings

The will of the parties is the mantra in international arbitration, as opposed to the rigidity of many domestic court proceedings. When deciding to bring the dispute to international arbitration, the parties will be able to choose their specific set of rules of procedure, the applicable law to the proceedings, the language of the proceedings and to appoint arbitrators with specific skills set. For example, an Italian construction company may decide to appoint an arbitrator who is an engineer in the case of a dispute stemming from delay in the performance of a construction contract. Furthermore, an Italian manufacturing company doing business in China may decide to include an arbitration clause in a contract which provides that the proceedings will be in English, the applicable law will be Swiss, and the seat of the proceedings will be London. Furthermore, the arbitrator could adapt the procedure to keep the costs as low as possible without affecting due process and the parties' ability to get a fair hearing.

Independence and neutrality of arbitrators

Knowledge of different legal traditions, foreign languages and cultural sensitivity are crucial factors in the context of cross border disputes. To overcome the risks of bias, parties in international arbitration proceedings have the opportunity to select the arbitral tribunal. If the tribunal is composed of a single arbitrator, he / she will be chosen by agreement of the parties. If the tribunal is to consist of three arbitrators, the parties themselves may choose two of them, and both arbitrators choose the president of the arbitral tribunal. In any case, each arbitrator must meet requirements of independence and impartiality and may be dismissed if this proves not to be the case.

Advantages of arbitral awards' enforcement

As opposed to mediation and conciliation procedures, the end result of the arbitral process will be a final and binding decision directly enforceable by court action. Its binding effect and enforceability are much more widely accepted than judgements of domestic courts of any country. The vast majority of countries, including Italy, has adopted the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which facilitates enforcement by providing very limited grounds to challenge an award. Accordingly, Italian companies that have obtained a favourable award will be able to easily enforce it in one of the 159 countries which are parties to it, wherever the counterparty has assets even if those assets are entirely outside the remit of the dispute.

Withers' experience in assisting Italian entrepreneurs and companies doing business abroad

Withers has been assisting Italian clients for more than twenty years with international arbitration proceedings. Our team is fluent in numerous languages, including Arabic, French, Greek, Italian, Russian, Spanish and Turkish and members are qualified in both common and civil law jurisdictions. We have advised well-known Italian brands in fashion, retail, art, sport, construction and industry. We have more than 30 fluent Italian speaking lawyers across all areas and have offices in Milan and Padova. These key factors contribute to the strength of our international arbitration practice and place us as trusted advisors to Italian entrepreneurs and companies involved in cross-border disputes.

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