International Contract Dispute Resolution – It Pays To Plan Ahead

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Michael B. Tule
Director and Vice Chair, Corporate Department
Published: New Hampshire Business Review
May 20, 2013
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Making the decision to take your New Hampshire-based business international is a big step. You’ve found the right partner, and now you are ready to embark on your international venture. But the long term health of your international business relationships may depend on how well you plan ahead for trouble. While deal-making may be the initial priority, providing for dispute resolution when trouble occurs should be just as important.

Don’t overlook the simple things. Make sure that your international business relationships are documented with a carefully drawn contract drafted with the help of an experienced lawyer. Moreover, all international commercial contracts should, as a matter of course, have a dispute resolution clause that includes an effective agreement to arbitrate.

Why Arbitrate?

Arbitration is the most widely used method of alternative dispute resolution. It is similar in process to a court, but is private and generally less formal. Like litigation in courts, it is expensive, time consuming, and distracting. But for most international disputes, there is no satisfactory substitute. There are two major reasons for this. First, agreeing to arbitrate assures that your dispute will be heard in a neutral forum, instead of the other party’s home court, where you may face a biased judge and an unfamiliar language. Second, with arbitration you have a far better chance at having a judgment or award enforced. Enforcing the judgment of a court (even a U.S. court) in another country isn’t a sure thing. International arbitration is different.  Under a multinational treaty known as the “New York Convention,” 142 signatory countries have agreed to recognize and enforce foreign arbitration awards. There is no comparable treaty governing the judgments of U.S. or foreign courts. Therefore, it is almost always to your advantage to agree to arbitration when you are contracting with an overseas party, provided that each party is located in a country, or has assets in a country, which is a signatory to the New York Convention. If you are dealing with a party who is not located in a country that has signed the New York Convention, you must proceed with extreme caution and take additional measures to protect yourself. Consult an experienced attorney in such a case.

Arbitration Agreement Essentials

When beginning a commercial relationship, dispute resolution is often the last thing on everyone’s minds. A principal decision maker might treat the arbitration clause as “boilerplate” and never give it a second thought. But you ignore it at your peril. You must craft the arbitration clause to fit your business objectives and accommodate the unique circumstances of your particular deal. Poorly drafted arbitration clauses pose many dangers, and clever defendants can exploit an imprecise arbitration clause to delay or completely avoid arbitration.

With that in mind, there are several essentials of any well-drafted arbitration agreement. These essentials include the scope of the dispute, exclusivity, number of arbitrators, language of the arbitration (English, if at all possible) and applicable substantive law, among others. In addition, every arbitration clause should contain a provision referring to and incorporating the rules of a specific arbitration organization to govern the arbitration. There are perhaps a half dozen pre-eminent arbitration organizations in the world. They include the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”), the  International Centre for Dispute Resolution or “ICDR”, the Stockholm Chamber of Commerce (“SCC”) or the Singapore International Arbitration Centre (“SIAC”), among others. All of these organizations are reputable, but experienced lawyers often recommend using the ICC as the arbitration administrator in international disputes. It is generally believed that the ICC, although expensive, is the most widely recognized organization and has the best panel of arbitrators to choose from. In some situations, you may want to use an organization like the LCIA or the ICDR, which charge a fixed fee for the arbitration versus a percentage of the claim, like the ICC. It is possible to draft an “ad hoc” arbitration clause, which calls for the arbitration to he held privately between the parties, without the rules or administrative oversight of an arbitral organization, but this is generally not recommended.

One of the most important decisions to make is designating the place of arbitration.  Generally speaking, the parties try to pick a place that is neutral. You should take care to choose a country that has a well-developed body of arbitration law and a modern arbitration statute.  The most reliable (and popular) places of arbitration are London, Paris, Geneva, Zurich, Stockholm, the Hague, New York, Los Angeles, Toronto, Rome, Brussels, Singapore, and Bermuda.

There are other provisions you may consider other than the essentials listed above. In deciding whether to include such provisions, you and your lawyer should give a great deal of thought to whether such provisions are necessary and/or whether they may provide strategic advantage in the context of your deal. Examples of such other provisions include designating special qualifications of the arbitrators, nationality of the arbitrators, special discovery procedures, limitations on types of damages, deadlines and time limits, special summary disposition procedures, shifting costs and expenses to the losing party, and assessing costs to collect a judgment.

Conclusion

In every international commercial contract a carefully crafted arbitration clause is a necessary part of any process for resolving international disputes. Putting an effective dispute resolution process in place at the beginning of the contract will avoid problems later, if the unthinkable happens.