The Limitations of Arbitration

Abstract

One of the casualties of the Asian financial crisis has been the comforting notion that arbitration permits international transactions to avoid unpredictable local courts. A string of rulings by Indonesian, Pakistani, and Indian courts illustrate the limits of arbitration. These rulings have been prompted by foreign exchange crises, allegations of corruption, disputes about privatization, political instability, and, sadly, limited respect for contractual obligations. To project developers operating in an unstable country, it may appear that international arbitration has most value if the developers are prepared to obtain recovery solely from offshore assets. Even then, the time and expense involved in recovery efforts is significant.