Mediation – Arbitration – MedArb – Expert Determination

Most parties to an international business transaction (IBT) find disputes undesirable, a distraction from their actual business, something they would like to avoid, contain, and end as swiftly and cost-effectively as possible. This is an interest both sides usually share. The best lawyers and in-house legal counsel will focus more on conflict prevention than on conflict or dispute resolution.

Even if a problem does arise, many disputes can be resolved via negotiations and some kind of settlement and do not require the involvement of third parties, which invariably costs time and money. However, some disputes cannot be resolved so easily and if sufficiently valuable assets or interest are at stake, either or both of the parties may find it useful or even necessary to take recourse to one or more formal dispute settlement procedures.

If purely bilateral negotiations did not lead to a resolution of the dispute, the parties may call upon good offices of third parties in the hope that a negotiated solution can be found. These third parties can use their prestige or experience to ensure that the disputing parties negotiate in good faith, understand all undisputed facts, fairly assess the evidence for or against disputed facts, and are aware of the legal rules potentially applicable to their dispute and how they could or should be understood. If the third party is called a facilitator, the procedure may be referred to as conciliation.

If a third party additionally makes proposals for a resolution of the dispute, we usually speak of mediation.

All cases are so far characterized by the freedom of the parties to accept or reject a negotiated outcome. An involvement of attorneys or other legal professionals is so far entirely optional and by no means always advisable since it invariably costs (more) money and may lead to an escalation of the dispute. However, while a mediator does not have to be a trained lawyer, she should be trained and qualified in the do's and don'ts of mediation.

If neither of these procedures brings about a resolution of the dispute, the party or parties have to decide whether or not to initiate adversarial procedures before a court or tribunal. Unless it was contractually excluded, a party always has the right to call upon a public court for help. Although different countries have different rules in this regard, it is virtually universally accepted that a plaintiff may bring a case against a defendant in the court district where the defendant has his or her domicile, the so-called defendant court. Calling upon one or more public courts for the resolution of a dispute resulting from an IBT is called international or transnational litigation. The result is typically a judgment and the victorious party or parties can call upon the police powers of the respective state to have it enforced. However, if the losing party or parties do not have (sufficient) assets in the respective state or enforcement has to be sought in other states for other reasons, recognition and enforcement of a foreign judgment in these other states is by no means automatic. Moreover, litigation in a foreign country, under a foreign legal system, and in a foreign language can be undesirable for many other reasons.

If both parties to an IBT agree, either at the time when their contract is concluded or later, when the dispute has arisen, they can go to expert determination or arbitration instead of litigation. While experts are usually industry insiders, arbitrators are usually lawyers with special arbitration training and various levels of industry-specific experience. Expert determination and arbitration can be managed by a national or international dispute settlement institution such as the International Smart Mediation and Arbitration Institute, or the parties can pursue a more informal approach called ad hoc arbitration. In either case, an arbitral tribunal of one or three arbitrators will be composed specifically for the dispute. Eventually, the arbitrator(s), after hearing the arguments of the parties and reviewing the evidence and any applicable laws, will issue an award granting or denying some or all of the claims of the parties. Arbitral awards are enforceable domestically pursuant to the national law of the seat state of the tribunal. The recognition and enforcement by other states is usually mandated by the New York Convention.

The International Smart Mediation and Arbitration Institute offers its services in all forms of ADR listed above. Parties to an IBT are encouraged to review our Model Clauses and include the most suitable clause in their contract from the beginning. Even if a dispute arises in an IBT that does not have a good ADR provision in the contract, the parties can always conclude a separate mediation/arbitration agreement later to pursue ADR instead of litigation. In addition to carefully drafted Model Clauses, SmartArb offers procedural rules for the different forms of ADR that can be chosen by the parties to an IBT, even if they prefer to settle their differences via ad hoc mediation and arbitration. Finally, if the parties either cannot agree on their neutrals and procedures or if they have limited experience with international dispute settlement or a lot of money at stake, we recommend institutional dispute settlement services provided by SmartArb.