International Arbitration in Cross-Border Contracts: What Companies Get Wrong
An industrial pump company signs a supply agreement with an overseas supplier, receives eight million dollars’ worth of defective goods, and does what seems logical: it sues in the supplier’s home court. Five years later, it has spent more on legal fees than the amount in dispute. It has a judgment. It has no money. The supplier’s assets are in three other countries, and enforcing that foreign judgment means starting fresh proceedings in each one.
This was not a naive company. It learned the hard way that it picked the wrong dispute resolution mechanism.
In an international contract, dispute resolution is not boilerplate. It may be the most important clause in the deal. International commercial arbitration has become the default for serious cross-border contracts for one reason: it produces a decision you can enforce where the assets sit, without re-litigating the case in multiple jurisdictions.
Why Arbitration Dominates Cross-Border Contracts
Businesses have moved to arbitration because enforcing foreign court judgments internationally can be so difficult, slow, expensive, and uncertain.
Court judgments do not travel well across borders. Outside the country where a judgment is issued, it often has no automatic effect. Enforcing it typically requires fresh proceedings in every jurisdiction where assets are located, subject to local law and local courts.
The New York Convention changed that framework. Under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (often called the New York Convention), arbitral awards are enforceable in more than 170 jurisdictions, subject only to narrow defenses such as serious procedural irregularity, excess of authority, or violation of public policy. There is no comparable global system for court judgments.
Neutrality and expertise. Most companies do not want to litigate in the other side’s home courts. Different language, unfamiliar procedure, and local judges create obvious risk. Arbitration allows the parties to choose a neutral seat and arbitrators with relevant industry experience. The parties can also usually designate the language of the proceedings. In technical disputes, that combination can be decisive.
Confidentiality. Court proceedings are usually public. Arbitration proceedings are generally confidential under institutional rules and applicable law. When disputes involve trade secrets, pricing terms, licensing structures, or supply chain details, keeping the dispute out of public filings can be as important as the result.
Procedural flexibility. Arbitration is not tied to one legal tradition. Disclosure can be limited to what is actually necessary instead of defaulting to expansive American-style discovery that can exceed the value of the claim. Hearings can be tightly managed. In appropriate cases, they can be avoided.
What Arbitration Cannot Fix
Cost. A three-member tribunal, cross-border hearings, translation, and experienced counsel can push expenses into six figures quickly. Arbitration makes sense where the value justifies the process. For smaller contracts, a sole arbitrator, streamlined rules, or fee controls should be written into the clause at the outset. Trying to negotiate those protections after a dispute erupts is rarely effective.
Multi-party disputes. An arbitral tribunal binds only those who agreed to arbitrate. In supply chains, joint ventures, or layered agreements, that limitation can splinter one dispute into several proceedings under different clauses before different panels. The solution is drafting joinder provisions, consolidation clauses, and alignment across related contracts. Those structures must exist from the beginning.
Finality. Arbitration awards are difficult to appeal. This finality is both a strength and a risk of arbitration. Courts may set aside awards for serious procedural, jurisdictional, or scope-related defects, but they will generally not review a decision on the merits. A bad arbitration award is the end of the road.
I once had a large arbitration matter before an arbitrator who had very little experience. I firmly believed that our client should win, but the other side would not settle. We went to arbitration and I was terrified, knowing that if this inexperienced arbitrator ruled against my client, there would have been virtually no recourse. Fortunately, we did win, but this is one of the issues you might face when you choose arbitration.
In my experience, arbitration makes sense about half the time. The percentage is higher when the dispute is clearly about money, nonpayment, or a straightforward breach of contract and the primary objective is collecting against assets in multiple jurisdictions. The percentage drops when the core issue is intellectual property theft, trade secret misuse, tooling control, or ongoing misconduct that requires immediate injunctive relief. When stopping behavior matters more than obtaining a damages award two years later, court litigation is often the more effective tool.
The China Exception: When Litigation May Be Smarter
Many Western companies assume arbitration is automatically safer than litigating in China. That assumption can be expensive.
For disputes involving intellectual property theft, trade secret misappropriation, mold and tooling control, or ongoing unauthorized manufacturing, Chinese courts can be more effective than international arbitration. The specialized Intellectual Property Courts in Beijing and Shanghai, for example, can issue evidence preservation orders, asset freezes, and preliminary injunctions quickly. An arbitral tribunal cannot do those things on its own.
Chinese courts also interpret arbitration clauses strictly. If a clause omits the arbitral institution, the seat, the language, or the number of arbitrators, a court may refuse to enforce it. That can push the dispute into the defendant’s home court despite the parties’ intent to arbitrate. It happens regularly in manufacturing disputes.
Hong Kong remains a sophisticated arbitration center, but geopolitical pressure and enforcement scrutiny have led many multinational parties to look elsewhere. Singapore has become the preferred alternative for many. The Singapore International Arbitration Centre offers institutional stability and a strong enforcement record. It is also expensive, and enforcement against mainland China assets still runs through Chinese courts.
If the core risk in a deal is manufacturing misconduct inside China, if urgent court relief is likely to be necessary, and if you have reliable Chinese counsel on the ground, a Chinese court clause may provide more practical protection than arbitration. That is not a universal rule. It depends on the transaction, the assets, and the realistic enforcement path. Sometimes CIETAC arbitration makes sense. Sometimes arbitration in Hong Kong, Singapore, or a neutral third country makes more sense.
What virtually never makes sense, though I see it often, is litigation in a country that has no relationship to the transaction. That court will very likely refuse to hear the case.
Drafting the Arbitration Clause: Why It Determines Everything
International arbitration offers real advantages: global enforceability, neutral decision-making, industry expertise, and confidentiality protections that are often stronger than court litigation.
A poorly drafted arbitration clause eliminates those advantages.
A dispute resolution provision copied from an old template without considering the parties, the likely disputes, and the location of assets can lead to the very litigation you are trying to avoid.
Choosing the institution, the seat, the language, the number of arbitrators, and addressing joinder, consolidation, interim relief, and cost control are strategic decisions. Those decisions can determine whether a paper victory turns into recovered money.
Once the parties agree on the seat, I go to the website of the chosen arbitration body (SIAC, CIETAC, HKIAC, AAA-ICDR, LCIA, the ICC, or another), start with its model clause, and adapt it to the specific contract.
Practical Questions About International Arbitration
If the New York Convention makes arbitration awards easier to enforce, why would anyone choose a Chinese court?
Because enforcement and stopping the bleeding are different problems. If a supplier is running an unauthorized night shift using your molds, an arbitration award two years from now does not stop that. You may need a Chinese court that can issue an immediate injunction and seize assets now.
Does choosing Singapore as the seat for my arbitration protect me from Chinese legal interference?
It protects the integrity of the arbitral process and ensures a neutral tribunal. It does not bypass the Chinese system entirely. If you need to collect money from a mainland factory, you will still need to take that Singapore arbitration award to a Chinese court for recognition and enforcement.
At what contract value does international arbitration actually make financial sense?
There is no bright-line rule, but disputes in the low six figures will rarely justify the cost of a three-arbitrator panel and international counsel. For smaller deals, consider expedited procedures or a sole-arbitrator clause to keep costs aligned with the economics of the contract. See A Guide to Dispute Resolution Clauses in International Contracts for additional information on choosing an appropriate dispute resolution clause.
Can I just write “Arbitration in Singapore” and be done with it?
No. If you do not name the administering institution, define the number of arbitrators, and specify the language, you invite a jurisdictional fight before the merits are ever addressed. In China-related disputes, a vague clause may be ruled invalid altogether. I once had a case that involved a poorly drafted arbitration provision, and it cost both sides at least $50,000 each just arguing over its meaning.
Can you appeal an international arbitration award?
Generally no. Courts can set aside awards for serious procedural, jurisdictional, or scope-related defects, but they will not retry the case. Finality is one of arbitration’s core features.
Is international arbitration confidential?
In most commercial cases, yes. Institutional rules and applicable law typically provide confidentiality protections that are stronger than court litigation. But the scope of confidentiality depends on the seat and the rules chosen, which is why drafting matters.
