The term ‘Dispute Resolution’, in the literal sense, means to resolve issues between people. It is a broad enough term to cover every approach to resolving disputes that is generally accepted. With the progress of society and changing demands of the people, every decade saw a different method to resolve their conflicts. Earlier, when there were no strict laws governing an individual’s affairs, duels and fights were the means of deciding the victor of a dispute. Later, with the development of law in society, courts were seen as the primary source of dispute settlement. It did not necessarily mean that the dispute was resolved, but it aimed to provide justice to the affected individual. The present litigation procedure was evolved from these court proceedings, where parties now use the State’s statutory provisions to their advantage.
Primarily, the modes of dispute resolution can be categorized into two parts: formal and informal.1 The formal mode is litigation, a lengthy process with many requirements, taking numerous days to complete. It costs the parties a lot of time and money. The informal mode of dispute resolution, on the other hand, includes less structured and cordial methods including arbitration, mediation, negotiation, conciliation, etc. These are also considered an alternative to litigation and thus, called Alternative Dispute Resolution (ADR). Except for negotiation, the other modes consist of a third party helping to decide the matter.
Parties transacting internationally often choose to settle disputes by means of ADR rather than approaching domestic courts or international courts such as the International Court of Justice. Such a mode of dispute resolution is usually already decided by the parties, that is, ex ante ADR, or is decided upon the emergence of any dispute, that is, ex post ADR.2 Of these modes, the most widely used is arbitration and mediation.
Each dispute in international business requires a different approach based on the issue and parties involved. Where governments of sovereign nations are involved in international transactions, specialized inter-governmental institutions deal with the disputes arising out of such transactions. Private individuals or private investors who engage in business with other such individuals have separate institutions to deal with their disputes. The laws that govern the transactions also vary according to the place of business and the contract between the parties.
Thus, it is crucial to understand which method is suitable for the specific issue and which should be the preferred mode of dispute resolution.
International business is an expansion of globalization, wherein countries have reached each other’s markets. The issues that the parties face in an international transaction are related to trade and investment. Trade occurs when one party manufactures something domestically and sells it internationally, or when it manufactures something internationally and sells it domestically as well as internationally.3 Companies also establish manufacturing facilities in other nations where they can have inexpensive labour and simple access to resources and then supply their goods from such locations.
However, with the increase in intercountry relations, business between nations is rapidly growing. Such business transactions are affected by various political motives, which pose a great challenge for international business.
The contracts for international business transactions also suffer from anomalies because of differences in culture, language, time zones, technology, currency, politics, etc.4 The dispute resolution clause that indicates Arbitration as the preferred mode allows companies to approach a third-party arbitrator for settlement of any issue. However, these companies refrain from taking such action as it would tarnish the reputation of the host government, and even if the arbitral award is given in favor of the company, it does not necessarily indicate that the government will adhere to it.5
An essential requirement of doing business with any person or entity is the formation of a contract. Domestic contracts are prepared in accordance with the domestic laws of the particular country, and in the event of any breach, they are dealt with accordingly. Whereas, the contracts that are formed for international business are not governed by the laws of either of the States, unless specified, but fall under the provisions of public international law. The agreement between the parties holds precedence over any other international law governing contracts and modes of dispute resolution. Thus, it is necessary to draft a contract that clearly lays out the terms and conditions of the business and the mode of dispute resolution.
As mentioned earlier, it is often that the parties refer to the dispute for arbitration, and that is why there are several international institutions that have been developed to cater to the needs of dispute settlement. It is a process whereby, the parties appoint a third party to resolve their dispute, who gives a decision in the form of arbitral award. For international transactions’ problems, many ways have been devised by people in dealing with the issues. Another option is negotiation, where parties meet for a discussion on the issue voluntarily. It creates a platform for parties to freely express their concerns. However, in certain adamant situations, deadlocks can be created.
Mediation is another way which effectively deals with such deadlock. It sets a mediator for the parties to effectively communicate with each other while keeping in mind their interests. The involvement of a third party differentiates it from negotiation while also creating a similarity with arbitration. However, unlike in arbitration the party still has full authority to decide and any decision is not binding on the party unless a settlement agreement is signed.
The frontrunner institution for dispute resolution is the World Trade Organization (WTO)6 which aids in settling disputes when one member government thinks another is infringing the agreement’s provisions. It has a Dispute Settlement Body (DBS), which has the power to refer a dispute to arbitration, an appellate body, create dispute panels, and keep watch over the application of policies and suggestions.
Another significant institution for resolving disputes is the International Chamber of Commerce. It has a variety of amenities that can help parties resolve disputes swiftly and amicably. It offers services including ADR and arbitration. It has established the ICC (International Court for Arbitration) in accordance with the ICC Arbitration Rules. ICC, in contrast to a tribunal or a court, does not pass a decree but, instead, oversees emergency proceedings prior to the start of arbitration proceedings, examines and approves arbitral awards, and monitors arbitral proceedings. Additionally, it has created the ICC International Centre for ADR, which offers services including dispute boards and expert appraisal but principally concentrates on mediation as a means of dispute resolution. It also contains Documentary Instruments Dispute Resolution Expertise (DOCDEX), a specialised process used to resolve disputes involving trade financing instruments that is discreet, efficient, and affordable.7
Another international institution established for the settlement of disputes is the International Centre for Settlement of Investment Disputes (ICSID)8, which is an organ of the World Bank. ICSID provides guidelines made expressly for resolving disputes involving foreign investments between investors and States. The ICSID Convention and the ICSID Additional Facility, which set down the procedures for arbitration, conciliation, and fact-finding proceedings, are the two principal instruments. The Centre manages arbitration cases under several rules, like the UNCITRAL Arbitration Rules, as well as ad hoc investor-State and State-State disputes, in addition to managing processes under the ICSID rules. The Centre also offers its services for other forms of alternative conflict resolution, including the mediation of financial disputes.
Apart from all these institutions established by international bodies which primarily deal with disputes between member States, other institutions also exist that focus their attention on private individuals who engage in trade or investment-related business in other countries. These institutions are concerned with arbitral proceedings rather than other modes of dispute settlement. There are various Arbitration Centres in prominent cities around the world that are governed by their own separate rules, out of which the most renowned are the Singapore International Arbitration Centre (SIAC) and the London Court of International Arbitration (LCIA).
Even though arbitration is an alternative to litigation, they do share certain characteristics making arbitration a sophisticated process. The award passed by the tribunal or the arbitrator is considered to be binding unless the parties opt for a non-binding arbitration, even then the issue related to the business does not quickly get resolved. A well tailored arbitration clause can give enough authority to parties to steer the course of their proceedings, giving them autonomy which is found missing in litigation. It allows the parties to choose an arbitrator who has specialized knowledge in commercial arbitration.
These alternative modes of dispute resolution such as negotiation, mediation, and conciliation provide the parties such power to declare their interests and reap the benefit of the transactions. Thus, even mediation and negotiation can be an alternative to arbitration in international business transactions as it does not bind the parties to any set of arbitration rules.
In order to provide an alternative to arbitration or domestic litigation for cross-border conflicts, new “international” commercial courts are being built or taken into consideration in a number of jurisdictions, including Singapore, Dubai, China, and Kazakhstan9. In order to provide effective, impartial, and specialized services for international commercial disputes, these courts must overcome various obstacles, including competition from alternative conflict resolution methods as well as issues with judgement recognition and enforcement. Another global trend is of hybrid mode of resolution. Mediation-arbitration (med-arb), arbitration-mediation (arb-med), and early neutral evaluation (ENE) are examples of hybrid conflict resolution methods that combine the advantages of several dispute resolution procedures to best serve the interests of the parties.10 However, these systems necessitate careful preparation and drafting of the dispute resolution clauses, as well as open communication and coordination between the parties and the neutrals engaged. They also offer flexibility, inventiveness, and efficiency for resolving complicated and multifaceted conflicts.
Technology has been a part of law since a long time now and it has also assisted the legal research and prevention of certain illegal acts. It is also being adopted in the dispute settlement area for international business. The use of diverse technologies and tools to facilitate and improve the delivery of legal services, particularly conflict resolution, is referred to as legal technology (Legal Tech)11. Legal Tech can provide various advantages for international commercial dispute resolution, including enhancing process quality, efficiency, and transparency. Legal Tech does, however, present several difficulties, including issues with data security, privacy, secrecy, dependability, and compatibility.
It should be noted that the resolution of disputes in international business is a complex and dynamic field that necessitates a strategic and careful selection of the most appropriate mechanism and body for each case. Depending on the preferences, requirements, and expectations of the parties, litigation, arbitration, mediation, conciliation, and other forms of alternative conflict resolution offer various advantages and disadvantages for settling cross-border issues. The International Centre for Settlement of Investment Disputes, the World Trade Organization, the International Court of Arbitration, and other dispute resolution bodies offer specialized and impartial services for handling international business disputes, but they also encounter difficulties with regard to effectiveness, accessibility, and enforceability.
The use of hybrid dispute resolution mechanisms, the impact of COVID-19, the use of third-party funding, the adoption of legal technology, and other current trends and issues in international business dispute resolution present both opportunities and risks for the field’s future growth. Therefore, it is crucial for anyone interested in international business to be aware of the most recent advancements and innovations in conflict resolution and to seek professional counsel and direction if they are involved in a dispute.
1O Thomas Johnson Jr., Alternative Dispute Resolution In The International Context: The North American Free Trade Agreement, 46 SMU L. Rev. 2175 (1993).
2Steven Shavell, Alternative Dispute Resolution: An Economic Analysis, 24 THE JOURNAL OF LEGAL STUDIES 1, 2-4 (1995).
3Catherine Cote, 5 Common Challenges of International Business, HARVARD BUSINESS SCHOOL ONLINE (Jul. 25, 2023, 11:12 A.M.) https://online.hbs.edu/blog/post/challenges-of-international-business
4Id at 2.
5Nathan Jensen, Political Risk, Democratic Institutions and Foreign Direct Investments, 70 THE JOURNAL OF POLITICS 1040, 1041 (2008).
6WORLD TRADE ORGANISATION ,(last visit Jul. 25, 2023) https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm
7INTERNATIONAL CHAMBER OF COMMERCE, (last visit Jul. 25, 2023) https://iccwbo.org/dispute-resolution/about-icc-dispute-resolution-services/
8INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES, (Jul.26, 2023) https://icsid.worldbank.org/about
9Steve Randall, 10 Biggest Trends in Dispute Resolution, CANADIAN LAWYER (Jul. 25, 2023, 10:03 P.M.) https://www.canadianlawyermag.com/news/general/the-10-biggest-trends-in-dispute-resolution-in-2020/324608
10PwC, https://www.pwc.com/sg/en/services/consulting/forensics/trending-international-dispute-resolution.html (last visit Jul. 25, 2023)
11Id at 5.
Ms. Sukeshi Bharti
4th year law student,
Army Institute of Law, Mohali
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