Better, Faster, and Cheaper? Arbitration is Not Always the Most Efficient Alternative Form of International Dispute Resolution

Today, Iraq’s Ministry of Oil announced that it has won an arbitration against Turkey relating to a 1973 pipeline agreement. The arbitration, which had been pending for nearly a decade, ended with an International Chamber of Commerce tribunal finding that Turkey had violated the Iraqi-Turkish pipeline agreement by facilitating crude oil exports from the Kurdistan region of Iraq over Baghdad’s objections. The award reportedly ordered Turkey to pay Iraq around $1.4 billion of the nearly $26 billion sought by Iraq.

While arbitration is generally perceived as a faster and more cost-effective alternative to traditional litigation, this is not always the case in the international context. In some instances, as demonstrated by Iraq’s decade-long slog towards justice, international arbitration may be more expensive and time-consuming than traditional litigation, particularly when parties have disputes over complex and high-value matters—especially since the award itself will likely yield additional litigation over its enforcement.

Other examples demonstrating the inefficiency of arbitration include the case of Chevron v. Ecuador, Chevron initiated an arbitration against Ecuador under the U.S.-Ecuador Bilateral Investment Treaty (BIT) seeking damages for alleged violations of international law. The arbitration lasted over 10 years and resulted in a $9.5 billion award in Chevron’s favor. However, Ecuador challenged the award in multiple jurisdictions, leading to additional litigation and legal costs, including yesterday’s decision by the United States Supreme Court to deny certiorari review of criminal contempt conviction against attorney Steve Donziger arising from these proceedings.

Consider also the longstanding dispute between the Russian Federation and Yukos shareholders. The arbitration, initiated under the Energy Charter Treaty, lasted for over a decade and involved multiple rounds of proceedings, appeals, and challenges to the award. The legal fees and expenses incurred in the arbitration are estimated to have exceeded $200 million, excluding the fees and costs incurred in set aside and enforcement proceedings in various national courts.