Academic journal article International Journal of Purchasing and Materials Management

Fairness in the Resolution of International Business Disputes

Academic journal article International Journal of Purchasing and Materials Management

Fairness in the Resolution of International Business Disputes

Article excerpt


International business agreements are made within a context of multiple, possibly conflicting, dispute resolution systems. Some of these systems are essentially a composite of a country's courts and laws, while others (e.g., arbitration) are somewhat distinct from national legal systems. A purchasing manager considering entering an international agreement should be knowledgeable about the potential ramifications of such systems. This knowledge can then be used when negotiating the agreement. The discussion that follows attempts to provide some background information concerning dispute resolution systems. A negotiator would also need more specific research concerning the specific system(s) being negotiated.

Negotiating for the Resolution of Disputes

Dispute resolution clauses (DRCs) in international contracts can be drafted to replace otherwise applicable rights with alternative forums, procedures, and/or laws. Such a clause might, for example, specify that disputes related to the contract will be resolved by a particular arbitration association that will follow its own procedure and that will apply the substantive law (e.g., tort law) of a given country. This replacement might cause little concern in situations in which the DRC resulted from bargaining between informed parties. If there was no such bargaining, a question of fairness to the nondrafting purchaser or supplier could arise.

What Is Fair? Efficient Operations vs. Legal Rights

The question of fairness can be seen differently by the various parties to a contract. One side might argue that it is only fair to allow a business to operate in an efficient manner when handling numerous disputes with far flung customers and/or suppliers. DRCs, especially predrafted ones, can be seen as providing the sought-after efficiency. "Standardization of agreements serves many of the same functions as standardization of materials and services; both are essential to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than to details of individual transactions."[1]

The nondrafting party, on the other hand, might stress that fairness requires that important legal rights should not be lost (i.e., waived) in the absence of informed bargaining. The following illustrations of what might be waived by a DRC are generalized and not exhaustive, since rights vary geographically.[2] Their loss through waiver may potentially be a significant disadvantage for the nondrafting party.

One such right is to be sued only in one's home jurisdiction and thus have a local judge and, possibly, jury.[3] A second right allows a defendant to argue that its home jurisdiction should be the site of the trial even though, perhaps through application of the long arm jurisdiction concept, the trial might also be held at the plaintiff's preferred location.[4] In making this argument, the defendant might be permitted to utilize the doctrine of forum non conveniens to try to convince a distant court that the trial should be in the defendant's jurisdiction because, for example, that is where most of the evidence and witnesses are located.[5] Other rights include being able to (1) argue that a particular country or state's substantive laws should be applied in the case[6] and (2) use possibly advantageous procedures of litigation.[7]

The Law's Traditional Solutions

The tradeoff between efficiency and legal rights is not a new one. The law has recognized both the need for standardized contracts and the potential for their abuse. The latter has resulted, for example, "in government regulation of insurance policies, bills of lading, retail installment sales, small loans, and other particular types of [standardized] contracts."[8] In addition to regulation, another approach the law has taken is to enforce a standardized contract, but construe any uncertainties against the drafter. …

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