By Kaley Gilbert, Senior Staffer

Increasing global conflict challenges international arbitration’s ability to successfully settle commercial disputes. Arbitration depends on cooperation.  But the polarization associated with growing global conflict, ranging from active conflicts such as Russia’s invasion of Ukraine to the cold conflict between the United States and China, challenges the norms and practices that typically facilitate cooperation between nations.

Several prominent arbitration institutions facilitate effective international arbitration by providing mechanisms to resolve procedural disputes, such as when parties cannot agree on an arbitrator. The frameworks provided by these institutions make it easier to move forward with a proceeding even when there is a lack of cooperation from one of the parties.

Another option for international arbitration is ad hoc arbitration proceedings, where parties organize the procedures outside of an arbitration institution. Ad hoc arbitration can, however, pose additional obstacles to settlement if one party is reluctant to cooperate because it lacks the same institutional rules and procedures of arbitration used by respected international institutions. With escalating global conflict, there has been less cooperation among parties employing either method of arbitration.

Russia

Russia has displayed a growing skepticism towards the validity of international arbitration proceedings based on arbitrators’ supposed alignment or bias towards Russia. This is particularly true when the proceeding involves nations viewed as adversarial to Russia in the wake of its invasion of Ukraine in February of 2022. After several nations imposed sanctions and restrictive measures on Russia, the Russian government issued a decree designating such nations as “unfriendly countries.”

In August of 2024, Russia’s Supreme Court ruled against enforcing an arbitration award decided by a tribunal in London, citing the arbitrators’ nationalities. The London proceeding was between a German buyer, C. Thywissen GmbH, and a Russian seller, Novosibirsk (NS) Bread Products. The arbitration tribunal included British, Danish, and Ukrainian arbitrators, all citizens of “unfriendly countries.” The ruling illustrates Russian courts’ growing hostility towards arbitration proceedings hosted in certain foreign countries. These courts justify their decisions, claiming that unfriendly nations’ biases will disadvantage Russian parties.

In its August 2024 decision, the Russian Supreme Court cited Article V(2)(b) of the New York Convention when it denied the arbitral award.  Article V(2)(b) allows rejection of an arbitral award by a country if “enforcement of the award would be contrary to the public policy of that country.” The Court reasoned that (1) the nationalities composing the tribunal violated the principle of objectivity and impartiality, and (2) it would be difficult for Russian parties to retain representatives due to the sanctions and restrictions placed on them. This court’s decision reflects Russia’s increasing unwillingness to cooperate with nations it views as hostile to its interests through arbitration proceedings. Russian courts have increasingly opted to assert control over any case involving Russian parties, even when claiming jurisdiction violates arbitration clauses that the parties previously agreed on.

“Increasing global conflict challenges international arbitration’s ability to successfully settle commercial disputes.”

Kaley Gilbert

China

Similarly, issues like intellectual property theft, violations of international norms in business and trade practices, and increased encroachment of the South China Sea and Taiwan have stoked tensions between China, the United States, and other nations aligned with the United States. While there has not been a direct outbreak of hostility like that of Russia invading Ukraine, China and the United States have experienced a Cold War-style conflict driven by competition for global strategic power.

Despite these tensions, China has been more willing to cooperate with the international arbitration system. In July 2024, the Chinese government passed draft amendments to the Arbitration Law of China that indicated a willingness to abide by international arbitration standards. The drafted amendments would make it less likely that arbitration agreements would be invalidated under Chinese law.

The draft amendments legalize ad hoc arbitration and create a registration process for foreign arbitration institutions with offices established in China. This change recognizes the legality of these institutions’ operations within China, making it easier for foreign arbitration proceedings to proceed in Chinese markets. The amendments also modify the requirements of a valid arbitration agreement, making it less likely that a party will challenge the ruling.

The developments in China spell positive news for global arbitration mechanisms as they show that the Chinese are willing to cooperate with international standards. Unlike Russia, however, China has only engaged in a cold conflict rather than active hostilities. The contrast between trends in China and Russia’s willingness to cooperate with other nations in arbitration may indicate that more active conflict, which has not yet happened with China, could spell greater resistance to cooperation.