Disputes are not uncommon in international business transactions. Be it due to outstanding payments, breaches of contract or differing legal opinions. However, going to a state court is often not only time-consuming and cost-intensive for cross-border companies, but also risky. Language barriers, foreign legal systems, different procedural standards – all of this puts many companies off. Fortunately, there are alternatives. Two procedures have proven themselves in international business: international arbitration and mediation. Both rely on flexibility, confidentiality and individual responsibility and can be combined.
Arbitration: Tailor-made rulings for the global economy
International arbitration proceedings replace state court proceedings if the parties contractually agree to this. In an arbitration clause, both parties agree to appeal to a court of arbitration in the event of a dispute. This private tribunal makes binding decisions and is usually quicker, more confidential and more technically precise than a state court.
One of the biggest advantages is that the parties are free to choose the language, location, number of arbitrators and the applicable law. This is a considerable advantage, especially for international contracts. And enforceability is also guaranteed: arbitration awards can be enforced worldwide thanks to international conventions such as the New York Convention of 1958.
Whether ICC (International Chamber of Commerce) in Paris, LCIA (London Court of International Arbitration) in London, SCC (The Arbitration Institute of the Stockholm Chamber of Commerce) in Stockholm or SIAC (Singapore International Arbitration Centre) in Singapore – there are numerous established institutions around the world that administer and support arbitration proceedings.
Mediation: global conflict resolution at eye level
In contrast to arbitration, mediation is not based on authority, but on cooperation. A neutral third party – the mediator – guides the parties through a structured process in which they develop a solution on their own responsibility. Mediation only ends successfully if the parties actually reach an agreement.
The advantage is that the relationship between the parties to the conflict remains largely intact, which is worth its weight in gold, especially in long-term business relationships. In addition, the proceedings remain completely confidential. A strength that should not be underestimated at a time when a company’s reputation can be damaged by public legal disputes.
Strategic combination
Many international treaties now rely on a clever combination of mediation and arbitration, known as Med-Arb. The idea is that in the event of a dispute, the parties first attempt to settle the conflict through mediation. If this attempt fails within a defined period of time, arbitration proceedings are automatically initiated.
This combination combines the flexibility and consensus orientation of mediation with the enforceability and finality of an arbitration award. The parties lose no time and always retain control over the course of the proceedings.
Arbitration and mediation clauses as a way of setting the course in the contract
If you want to be on the safe side, you should take precautions when concluding a contract. International arbitration institutions offer standardized arbitration and mediation clauses in many languages. These can be flexibly adapted, for example with regard to the number of arbitrators, place of arbitration, language of proceedings or applicable law.
Need an example? A typical mediation clause could read:
“All disputes in connection with this contract shall first be settled by mediation in accordance with the xyz Mediation Rules for Commercial Disputes. If no agreement is reached within 60 days, the dispute shall be settled in accordance with the ICC Arbitration Rules.”
Global dispute resolution – efficient, confidential, effective
Today, it is more important than ever for internationally active companies to integrate efficient and flexible dispute resolution mechanisms into their contracts. Mediation and arbitration offer ideal conditions for this, and in combination they develop their full potential.
Whether you are a high-tech company from Berlin, an energy supplier from Paris or a start-up from Singapore – anyone operating in global markets should take advantage of these processes. Because in a networked world, there is no need for new conflicts, but rather smart solutions that build bridges, not deepen rifts.
Questions? Please feel free to contact us.
