International transactions will have contacts with more than one jurisdiction, often making it unclear where disputes arising out of the transaction should be (or will be) resolved. Consequently, part of the indispensable minimum is knowing that every international contract should include a choice of law clause AND some kind of dispute resolution clause, which could either be a choice of forum clause or an arbitration clause.
The forum-selection clause in a contract states the location where any disputes relating to the agreement will be resolved. A forum-selection clause performs 2 basic functions: First, it consents to the jurisdiction of the chosen forum, removing objections of personal jurisdiction and venue. Second, if the clause is exclusive, then it prevents the parties from bringing suit in any other forum. The Supreme Court has held that a forum-selection clause should be enforced unless the party resisting enforcement can show fraud or overreaching, or that enforcement of the clause would deny a party a meaningful day in court (see M/S Bremen v. Zapata Off-Shore Co. (1972) and Effron v. Sun Line Cruises, Inc. (1995)).
International commercial arbitration is an option for resolving transnational disputes that has several benefits over litigation: Arbitration is usually faster than litigation because there is no docket and there are no appeals. The parties to the dispute can choose the arbitrators, which affords them the opportunity to select experts in a subject matter relevant to the dispute. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the "New York Convention") provides for the enforcement of arbitral awards whereas no international convention currently provides for the enforcement of US judgments. Lastly, arbitration is inherently neutral, because neither party is required to litigate in the other’s court system.
An arbitration clause should include, at a minimum, 3 things: (i) A description of the type of disputes that will be subject to arbitration. (ii) A way of appointing the arbitrators (probably by reference to a set of arbitral rules). (iii) Last but not least, the place of arbitration (preferably in a country that is a signatory to the New York Convention).
It’s important to remember, however, that arbitrators can only award damages, they cannot award injunctive relief. Thus, if there is a chance that injunctive relief may be a desired remedy to a particular dispute (e.g. disputes regarding intellectual property), then the contract should specify the forum where these types of disputes will be litigated. It should also be noted that not all disputes are capable of settlement by arbitration. Under the New York Convention, each country may determine for itself what kinds of disputes are non-arbitrable. The Supreme Court has adopted a very favorable attitude towards international arbitration, taking the position that all issues are arbitrable unless Congress expressly says that they are not (see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985)).
For some illustrative examples of what happens when contracting parties fail to provide the indispensable minimum, check out a post at China Law Blog entitled, "So Ya Say You Wanna China Arbitration, Well You Know."
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