International Arbitration or State Court: pick

Mainstream

The choice between international commercial arbitration and a state court is not a matter of legal theory. It is a question of where your money will end up after the dispute is over.

The main mistake is to start the analysis with a question: “Where will we get the solution faster?” The right question is: Where do we get the solution that we can actually enforce in the jurisdictions where the opponent’s assets are located?

Therefore, the effective choice of the dispute resolution forum is always based on three pillars:

1. The feasibility of future solutions in target countries.
2. Procedural opportunities for asset protection during the dispute.
3. Commercial feasibility considering price, speed and confidentiality.

If a decision cannot be enforced where the debtor has money and property, a brilliant legal victory turns into an expensive academic document.

When the question arises about the choice of forum

The choice between arbitration and a public court is relevant if:

• You agree on a new foreign economic contract (delivery, EPC, distribution, service);
• The dispute has already arisen and there is no clear arbitration or prorogation clause in the contract;
• the counterparty insists on a specific forum, and you need to evaluate its offer;
• the debtor’s assets are dispersed across several jurisdictions (Russia, CIS, Europe, UAE, offshores);
• The parties are located in countries where the judicial system raises doubts about objectivity.
• The dispute concerns sensitive commercial information.
• Business relationships must be maintained even in conflict situations.

Mistakes made at the stage of contract formation

Many companies make an arbitration clause “on the model” or, conversely, give the dispute to the state court at their legal address, without thinking about the future.

The right approach is to model the worst-case scenario before signing. You have to ask yourself: If tomorrow the counterparty stops paying and withdraws assets, what kind of reservation will give us the maximum chance of real recovery in 2-3 years?

The answer to this question often requires not just a comparison of tables, but a detailed analysis of the counterparty’s specific business and its geography.

Criterion 1. Executability is a key factor

That's the main criterion of choice. The international enforcement of arbitral awards is based on the 1958 New York Convention, which is recognized by more than 170 states. An award can be reversed or not recognized only on a very limited list of grounds.

There is no such universal regime for the decisions of state courts. Their recognition abroad depends on bilateral legal assistance treaties, reciprocity or national legislation.

A public court may be effective if:

• all assets of the debtor are located in the country of the court;
• between the country of the court and the country of execution there is a reliable international treaty (for example, the Kiev Agreement of 1992 for a number of CIS countries or bilateral conventions);
• The decision should not be made abroad in principle.

If the debtor is a company from one jurisdiction, its assets in another, and the beneficiaries in a third, the arbitration clause is almost always preferable.

Criterion 2. Confidentiality

State courts in most jurisdictions hear cases openly. Protocols, decisions, and evidence can be made public, creating reputational risks and revealing commercial schemes.

Arbitration is confidential by default. The hearings are closed, the materials are not published, the composition of the arbitration is bound by the duty to maintain confidentiality. This is critical when:

• The dispute concerns pricing and margins;
• the know-how and structure of supply chains are disclosed;
• one of the parties - a public company or a state company;
• It is not advisable to set a precedent.

But remember: In a number of investment arbitrations and disputes with the state, confidentiality may be limited.

Criterion 3. Cost of the process

Cost comparisons are often simplified. It is not possible to compare only arbitration fees and state fees. The full cost should be considered, including:

• legal representation (in international disputes it is comparable);
• Expenses for experts, translation, oral hearings;
• travel expenses;
• Costs of execution of the decision.

Real cost structure:

Arbitration (ICC, LCIA, SIAC, etc.): Administrative and arbitration fees: Often proportional to the price of the claim, can be significant for large amounts. For example, in the ICC, at a claim price of $10 million, the fee can reach $200-250 thousand. included in the fee or calculated separately. - Costs for premises, transfer: - The side is carrying. The parties may agree to reimburse the losing party for reasonable legal costs.

State Court (Russia and most CIS countries): - State duty: It is usually low, even in case of large claims (in Russia – fixed scale with a maximum of 200 thousand). rub. for property claims, which is significantly lower than arbitration fees. - No fee for a judge. Reimbursement of expenses for representatives is often limited and unpredictable (in the CIS, courts can reduce the costs of recovery radically).

Paradox: In case of a major dispute, the cheapness of the state court at the start may turn into an inability to execute the decision, which will devalue all the savings.

Criterion 4. Speed of proceedings

The stereotype that arbitration is always faster than a court is dangerous.

Qualitative arbitration (especially under the auspices of top institutions) takes 12-24 months. However, complex disputes with multiple motions, recusals of arbitrators and interim measures can go on for longer.

The State Court of First Instance in the CIS countries can formally consider the case in 2-4 months, but with appeal and cassation, the real period until the final verdict is received is 1-2 years. At the same time, there is a risk of endless delay in court through appeals against interim determinations, appeals against interim measures, etc.

The main difference is: in arbitration, the decision is final and cannot be appealed on the merits. In the state court, there is a three- or four-tier appeal system. It's a double-edged sword. On the one hand, the court allows for correcting errors. On the other hand, it gives the losing party years to withdraw assets.

Criterion 5. Interim measures of protection

Here, state courts often have an advantage.

The state court at the location of the assets can quickly seize accounts or property, prohibit registration actions. This works particularly well in jurisdictions with a well-developed institution of court orders and freezing orders.

It's more complicated in arbitration. The composition of the arbitration has not yet been formed, and measures are needed immediately. Many arbitration rules allow for interim measures to be sought in a state court before a tribunal is formed. That is, even by choosing arbitration, you do not lose access to state court for emergency asset protection. But that requires additional coordination.

Advice: If you have arbitration in the contract, be sure to retain the right of the parties to apply for interim measures in the competent state court, so that there is no dispute about whether it violates the arbitration clause.

Criterion 6. Choice of arbitrators vs. judge

In arbitration, the parties themselves choose the arbitrators. This allows you to appoint a specialist in the narrow profile that is needed (construction, oil and gas, maritime law, M&A). Technically complex disputes are handled by people who understand the industry, not just read the law.

In the state court, a judge is appointed. You can get a brilliant lawyer, or you can get an overloaded specialist with no experience in international transactions. Appointing an expert in court is a complicated and slow procedure. In arbitration, the expert is a familiar part of the process.

But the choice of arbitrators has a downside: Quality composition is expensive. If the amount of the dispute is small ($100,000-200,000), the costs of the three arbitrators may exceed the reasonable commercial benefit. Such disputes may be suited to a state court or arbitration with one arbitrator.

Criterion 7. Place of arbitration and neutrality of the forum

Neither side wants to sue the opponent in court. Fear of “home” justice is the main reason for choosing neutral arbitration. London, Paris, Singapore, Stockholm, Dubai, Vienna are neutral platforms with developed arbitration law.

For contracts related to the CIS countries, LCIA, ICC, SCC, SIAC, as well as newer centers such as DIAC (Dubai) and ICC in Hong Kong are traditionally popular.

But there's a nuance here. Arbitration in London or Stockholm is not only prestige, but also high costs for business trips, premises, translation and local solicitors. For the average contract amount, this may not be justified.

Comparative table

How to choose an arbitration clause before a dispute

If you make a decision at the stage of the contract, the reservation should not be template, but built for a specific project.

Key elements of a strong clause:

1. Institute: ICC, LCIA, SIAC or Regional Center.
2. Place of arbitration: It is not just a “London” but a city, subject to convenience and applicable procedural law.
3. Number of arbitrators: one or three. For complex disputes, there are always three.
4. Language of the proceedings: English is the standard, but it is possible to provide for Russian or bilingual consideration to reduce translation costs.
5. Law governing the arbitration clause: It should be stated separately from the fundamental law of the contract in order to avoid disputes about validity.
6. A direct indication of the court's right to assist in obtaining interim measures.
7. Expedited procedure (expedited procedure): for disputes up to a certain amount.

Strategic decision-making model

In case of a dispute or when drafting a contract, we recommend the following two lines of defense:

Line 1: Forum for the resolution of the substantive dispute

• Determine if you need privacy and neutrality. If so, it's arbitration.
• Check where the debtor’s assets will be in 2 years. If you are in the CIS countries and you are confident in the contractual basis for legal assistance, the court of the Russian Federation or another CIS country can be more effective.
• Estimate the budget. If it is critically small and the amount of the dispute is high, look for hybrid options (for example, ad hoc arbitration under a simplified procedure or mediation with subsequent approval of the settlement agreement in court).

Line 2: Regardless of the choice of forum (arbitration or court), you should know in advance in which countries you can quickly block the accounts and property of the defendant before the decision. This line often involves the state courts of Cyprus, the British Virgin Islands, England, the UAE or other financial centers.

Common mistakes in choosing a forum

1. Choose arbitration for prestige in a small amount of dispute. The costs of arbitration may exceed the amount of the claim, making the process economically meaningless.
2. Agree to a state court of a counterparty from a country with an unpredictable judicial system. This puts you in a losing position.
3. Prescribe “hybrid” clauses (e.g., “arbitration or court of choice of the plaintiff”). Such reservations are often considered pathological and unenforceable.
4. Ignore the language factor. Russian-language arbitration in Vienna is possible and often cheaper than English-language arbitration in London.
5. Don't think about performance. When choosing a court in a country with which the target jurisdiction does not have a treaty of recognition, you are building a castle in the sand.

Checklist: What to choose for your contract

Before finalizing the reservation, answer 10 questions:

1. Where are the assets of my contractor?
2. Can I afford a budget for an arbitration fee of $100,000 to $250,000? In a major dispute?
3. Is it critical for my business to have the details of the dispute go public?
4. In what currency are the liabilities denominated and where are the accounts located?
5. Can the court decide as quickly as the court in the location of the assets?
6. Does my counterparty’s country have a legal aid treaty with Russia or another key jurisdiction?
7. Will I need to bring in technical experts to prove it?
8. Do I want to leave the right of appeal or do I need the finality of the decision?
9. Is my counterparty a company from a “sanctions” jurisdiction, which may complicate the administration of arbitration in the EU/UK?
10. Can I effectively file a lawsuit in the defendant’s location without the risk of political or corruption interference?

FAQ What's more reliable: In terms of enforcement abroad – arbitration. For quick freezing of assets within one country, a state court is required. Ideally, the strategy should combine both mechanisms: arbitration as the main process and judicial interim measures as an instrument of pressure.

Can a dispute be submitted to arbitration if the contract specifies a court? Yes, but only before filing a claim and with the consent of both parties. Once the trial has begun, it is extremely difficult to transfer the dispute to arbitration.

There are simplified regulations and centers focused on small and medium-sized businesses. However, if the amount of the dispute is less than $ 50,000. We need to take a close look at the economics of the process.

Yes, the ICAC at the CCI of the Russian Federation is a recognized institution. But we need to make sure that the future solution is enforceable in the debtor’s country without political obstacles.

Where is the best place to go to court with a company from the CIS? If the assets are in Russia and Kazakhstan, the Kiev Agreement for state courts may work. If the debtor is structured through offshores and assets in the EU/UAE, international arbitration (ICC, LCIA) is preferred.

Related services

• International Arbitration, Commercial Litigation & Cross-Border Disputes
• International Trade, Distribution & Cross-Border Transactions
• Sanctions, Export Controls & International Compliance
• Asset Tracing & Worldwide Enforcement
• International Regulatory Risk & Strategic Advisory

Related material

• How to recover debt under an international commercial contract
• How to choose an arbitration clause for an international contract
• Asset tracing: How to find the debtor’s assets before the start of a legal dispute
• Recognition and enforcement of arbitral awards in CIS countries
• Interim measures in international commercial disputes
• Sanctions and international arbitration: How to protect a deal

Conclusion

The choice between international arbitration and a state court is not about finding the universally “best” option, but rather finding the least risky and most profitable scenario for a particular business.

There is no predetermined correct answer. There is a cold commercial calculation: where the assets are, how to protect them, how much the process costs and whether the decision can be executed.

That is why the strategy of choosing a forum should not be a typical column in the contract. It should be the result of a detailed analysis of your counterparty, its jurisdiction and your commercial interests, conducted before a conflict breaks out. Because once the dispute arises, it will be almost impossible to change the rules of the game.