As more and more businesses in Minnesota start to play on the international stage, business contracts and agreements that were once governed by US law are now being negotiated around the world. Of particular importance to these agreements is dispute resolution, including where and under what law issues that occur will be resolved. While it might be fun to play spin the globe and aim a dart for somewhere tropical, there’s a lot more involved in picking the best jurisdiction or setting up international arbitration.
Of course, companies enter into business relationships expecting both parties to prosper and things to go well. A smart businessman knows, however, that this isn’t always the case and being prepared for a dispute to arise can make even difficult projects smoother. If a Minnesota company is purchasing goods from a Mexican manufacturer and a problem arises or a Minnesota company is selling to a company in Germany and they need collections, what happens next? Generally, international arbitration is the system by which these disputes which cross national borders are resolved.
Litigation that is filed in the US court system, or the courts of another country, would be a more traditional option. However, the playing field is often not level as there is no US treaty that provides mutual recognition and enforcement of judgements. So if you win your collections case in the US, you may or may not be able to enforce it in Germany. Generally, US courts will enforce an award from a foreign jurisdiction so long as the court is convinced that the judgement was arrived at with due process. There is, however, little reciprocity of this concept and any chance of enforcement will almost certainly be coupled with additional litigation in the country’s courts.
This uncertainty leads many companies to opt for international arbitration as the dispute resolution mechanism. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the New York Convention, has been adopted by over 140 countries and requires signatory countries to allow companies to arbitrate disagreements and recognize and enforce the resulting awards.
Arbitration is popular for businesses in general because it’s a fairly straightforward process, it gives you a final result, is legally binding, can be enforced internationally, can be cost effective, and can be done with appropriate confidentiality. When you enter into an agreement that specifies arbitration, you can also indicate the law you would like the agreement to be governed under and even determine who will handle the arbitration. These items and more can be stipulated in the initial contract governing the transaction so that when a business deal doesn’t go as planned, you have a roadmap to work out the issue.
When you plan to enter into a major international business transaction, be sure to reach out to the attorneys at Virtus Law Firm by calling 612.888.1000 or emailing info@virtuslaw.com. We can work with you to help you draft a contract that covers the entire transaction and explain to you how you would proceed in an international arbitration situation. Being prepared and understanding the options will help you make the best decisions for your business, even if you hope you’ll never need to use the dispute resolution options.