Bench & Bar of Minnesota

Anticipating and Resolving Global Disputes
By Walter J. Duffy, Jr.

A commercial project in today’s global economy might well involve an American contractor building a plant in India, using licensed German technology, for the benefit of a British owner/operator. This kind of cross-border, multinational deal has become increasingly common, particularly as technology has accelerated the development of international markets.

But what if something goes wrong? The claims, counterclaims, and finger-pointing that go along with complex commercial disputes are hard enough to work out in the reliable venue of the U.S. court system. Imagine a similar dispute on an international scale, with multiple jurisdictions, conflicting laws, and no easy way to enforce the judgment of one country’s court system in another.

Fortunately, international arbitration has emerged as a reliable protocol for resolving cross-border disputes. Although there are pros and cons to arbitration generally, it is particularly useful on global commercial issues, because it allows the parties to resolve their dispute under specified rules and laws and to readily enforce the outcome of the proceeding.

As with any other contract issue, however, getting the best results from international arbitration often depends on addressing potential disputes up front. Lawyers drafting contracts on cross-border deals should take arbitration issues into account during the negotiations and make sure an appropriate arbitration clause is included in the final document.

WHY ARBITRATION?

International arbitration offers several principal advantages as a dispute resolution tool in contracts on global deals:

1. It avoids unpredictable courts, unpredictable political situations, and unpredictable countries. Your dispute could readily wind up as a political or diplomatic football, or in judicial limbo as you argue jurisdiction. You may also do business in countries where legal protections for business are minimal.

2. A variety of international organizations offer flexible arbitration procedures. Dispute resolution organizations such as the International Chamber of Commerce, International Center for Dispute Resolution, London Court of International Arbitration, and others facilitate arbitrations and provide rules to govern the process.

3. You control the process by selecting the forum, facilitator, law, language, and number of arbitrators. The parties to the contract can negotiate a protocol for dispute resolution that is fast, convenient, cost-effective, and often less combative than traditional litigation.

4. It’s harder for other parties to avoid the reach of the law. You don’t need to worry, for example, about obtaining personal jurisdiction over non-U.S. defendants, or about whether the company with which you are contracting is protected under the Foreign Sovereign Immunities Act.

5. Most important, arbitral judgments are much easier to enforce internationally than overseas court judgments. If the party against whom the arbitral award is made has assets in one of the 126 countries which are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention), then the award in most circumstances will be treated as if it had been sought and received in a domestic arbitration in the country where you are trying to enforce it.

Is arbitration a panacea? Not necessarily. The process does have limitations: there is no practical right of appeal; discovery, documents, and motion practice are often severely restricted; and arbitrators aren’t necessarily bound by case law, or may issue “split the baby” decisions that give neither party a complete victory.

PROTECTING YOUR CLIENT

The best way to take advantage of international arbitration is to include an effective arbitration clause in the contract. The London Court of International Arbitration offers a good example that covers the basic issues:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be [one/three]. The seat; or legal place of arbitration shall be [City and/or County]. The language to be used in the arbitral proceeding shall be [____________]. The governing law of the contract shall be the substantive law of [_____________].”

You should also consider this non-exclusive list of additional considerations in addressing arbitration in the contract:

Enforceability. Think through how to enforce any award you may receive, including identifying whether the opposing party has assets in a country subject to the New York Convention.
Contract Provisions. Consider whether you want to mandate negotiation/conciliation and mediation as required preliminary steps before arbitration. These may allow you to resolve the dispute at a lower level and preserve the relationship. Also make sure that the arbitration clause is inclusive of all possible disputes and that the contract stipulates a time frame in which the arbitration should be completed and decided.
Rules. In most circumstances, you will want to specify one of the various institutional facilitators for the arbitration in your contract and agree to the rules traditionally used by that organization. Avoid rewriting the rules, since the organization may not agree to administer the arbitration under those conditions.
Arbitrators. You’ll generally be able to specify using one or three arbitrators. By making that decision during the contract negotiation, you’ll avoid having it become another point of contention in the event of a dispute. Using three arbitrators allows each party to pick an arbitrator, with the third generally chosen by the facilitating organization.
Site. Assuming the other party will agree, conducting the arbitration in the U.S. offers several advantages: a pool of experienced arbitrators, a wide range of experts, and easy logistics for most parties. London is a common alternative and offers a mature infrastructure for supporting international arbitrations.
Language. Using English is often cheaper and facilitates communication with outside experts and with the arbitral panel.
Substantive Law. Note that the law of the country chosen to govern the contract will not automatically apply to the procedural framework for the arbitration, which will most often be the law of the host jurisdiction.
Closure. The contract should specify that the arbitration award is final and binding without further appeal. If local law permits a specific waiver of appeal, include such a provision in the contract.

As multinational contracts become increasingly common, businesses and their lawyers should become familiar with the process of international arbitration and incorporate the most favorable language possible into their contracts. Arbitration can be a fast and effective tool for resolving disputes - but be sure to think ahead.

WALT DUFFY is a partner at Faegre & Benson and the head of the firm’s International Arbitration practice. He may be reached at wduffy@faegre.com.