What to do when overseas deals go sour

For a growing number of international companies, arbitration is the preferred way to resolve disputes.

Those working in business know that things don’t always turn out as planned. If a business operates internationally, even more issues can result if problems arise. In addition to the uncertainties of foreign markets, things can go awry over miscommunication, ill will or plain bad luck. This can lead to undelivered goods, misappropriated technology or cancelled contracts.

“Often international transactions involve complicated contracts that engage many parties, including foreign governments or multiple companies,” said John Lorn McDougall, a partner with Fraser Milner Casgrain LLP in Toronto and former chair of the Canadian Chamber of Commerce’s Arbitration Committee. “There are a number of problems that can arise. By far the most common is a breach of contract which can take all manner of forms and be coupled with other causes such as breach of fiduciary duty or good faith, or for illegal or wrongful conduct.”

So what can be done to protect a business against these uncertainties?

For more and more companies, the answer is international commercial arbitration and other forms of alternative dispute resolution. As foreign investment and international trade have grown, so too has demand for alternatives to litigation.

These days, international commercial arbitration is experiencing a boom. The Financial Times of London recently reported that three out of four corporate legal counsels at multinational companies would prefer to settle cross‑border commercial disputes by arbitration.

It’s no wonder then that the International Chamber of Commerce (ICC), whose International Court of Arbitration is among the oldest and largest arbitration forums in the world, has logged more than 500 new cases a year in the last few years. Companies around the world routinely include ICC arbitration clauses in their contracts.

Arbitration has many advantages over litigation, say experts. It is often faster and more cost‑effective, and it affords flexible procedures in a less public forum. In addition, McDougall says, “in many jurisdictions, home‑field advantage can be decisive, making international arbitration preferable to litigating disputes in your adversary’s home courts.”

Arbitration under the auspices of the ICC is subject to several international treaties, under which countries agree to recognize and enforce agreements and awards. The main treaty, the New York Convention, counts over 130 countries as parties. As a result, arbitral awards are generally easier to enforce internationally than court decisions.

Established in 1923, the ICC’s International Court of Arbitration pioneered international commercial arbitration. Today, some 120 lawyers and legal experts from more than 80 countries and territories compose the court. The court is supported by a 50‑person secretariat in Paris, which includes 30 attorneys from over 20 nationalities.

ICC arbitration is also very flexible. The parties can tailor the arbitration to their needs and have control over many other elements of the arbitration, such as who will hear the case and where the arbitration will take place.

As well, the ICC court scrutinizes awards for form and substance, which enhances their quality, says McDougall, who notes that ICC awards are seen as high quality ones that are respected worldwide. This recognition, and the ICC court’s scrutiny, are very helpful at the enforcement stage.

Arbitration hearings are not public proceedings, and only the parties themselves receive copies of the awards, unlike court cases that can become the subject of media attention.

Also attractive to business people is the fact that arbitration awards are subject to fewer challenges than court judgments.

“For this reason, arbitration can be a more efficient and affordable means of dispute resolution than court litigation,” says McDougall. “From start to finish, the timeline for arbitration is often shorter than for a similar lawsuit. This means cases can be resolved at less cost to the parties.”

Repinted courtesy of CanadExport, the official e-magazine of the Canadian Trade Commissioner Service.