A Guide to Drafting Dispute Resolution Clauses for Transnational Commercial Contracts
Effective July 2014
In a competitive global marketplace, few companies welcome the time, expense and adverse business consequences of traditional litigation. Such concerns are magnified when doing business abroad. Litigating in another country under a different legal system and possibly in a foreign language is unattractive, even before considerations of time, expense, and the practical difficulties of enforcing an overseas court judgment. No widely accepted international treaty for the enforcement of court judgments exists at present, thus reducing the judgment’s value to a successful litigant. The real possibility that a judgment might not be enforced is for many an unacceptable risk. One way to mitigate that risk is to provide in advance for dispute resolution.
There are many alternatives to litigation, including arbitration, mediation, negotiation, dispute boards, and hybrid processes which include elements of some or all of the above. Parties opting for international arbitration leading to an arbitral award face few of the hurdles posed by a court judgment from a foreign court. Enforcement of a foreign arbitral award may be achieved through the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), adopted by over 145 countries. The New York Convention mandates that States recognize agreements to arbitrate and that the resulting awards be enforced (with some limited exceptions). Other dispute resolution processes provide somewhat less formality and do not necessarily result in a definitive solution. Nevertheless, processes such as mediation or dispute boards may be better suited to the parties’ needs.
It is recommended practice, therefore, that when entering into a contract or business relationship, companies should consider and decide on the procedures that will govern the resolution of any disputes that may arise in the course of that relationship. By providing for effective dispute resolution before a conflict emerges, parties may avoid attempting to negotiate in the midst of a substantive dispute in circumstances where trust on both sides has diminished.
JAMS provides sample dispute resolution clauses for insertion into a contract prior to a dispute arising. These samples are set forth in the downloadable documents, and some are briefly discussed.
By suggesting the contract language in this Guide, JAMS is not purporting to offer legal advice. Rather, the legal effect of the clauses should be weighed by the parties in the specific context of applicable law, in consultation with counsel.