A Carrollton-based designer and builder of electrical power plants has been contacted by a regional government entity to build a power plant in the Ukraine using local labor.
While the project sounds lucrative, the prospect of labor strikes, corruption, red tape, delays, withdrawal of government approval and the ability to enforce breaches and delays raises concerns.
So the Carrollton designer enters into an agreement with the Ukrainian entity with an arbitration clause stating disputes are to be settled before the International Chamber of Commerce based in Paris.
The enforcement provisions of a multilateral treaty to which both the United States and the Ukraine are signatories, give the Carrollton company additional confidence.
This and similar scenarios are commonplace for Metroplex companies involved in business that crosses national borders.
But while international business opportunities may seem attractive, U.S. companies must determine how to ensure payment, performance and the enforcement of legal rights in the conduct of international business.
Fortunately, this dilemma has been addressed through the international arbitration process.
Organizations such as the ICC, the London Court of Arbitration, the Singapore Court of International Arbitration and many other arbitration courts and tribunals provide forums for resolving cross-border disputes and thereby provide predictability and encouragement for international transactions.
Today, almost every country has enacted laws and structured organizations which approve and adopt procedures and enforcement provisions for arbitration. More than 130 countries have signed to the New York Arbitration Convention under which they agree to enforce any arbitration agreement and award between citizens of member companies. Additionally, numerous countries have signed multilateral treaties that themselves contain arbitration provisions.
However, even with these arbitration organizations in place, U.S. companies would be well advised to embark on such agreements with trepidation and only after careful research of all options.
First, the romance of doing business internationally may carry a high price tag. The notion that arbitration is a less expensive, more efficient way to resolve disputes may not conform with reality. The ICC charges $60,000 per party just for the initial fee of a sole arbitrator, for matters involving several million dollars. If two parties want three arbitrators -- one selected by each party and a third appointed by the ICC -- the cost to each party is $180,000.
By contrast, the cost to file a lawsuit in a U.S. federal or state court is $150 to $200 per party depending on the court. Filing fees, administrative fees and costs for international arbitration tribunals do not include attorney time or travel costs for a legal team and witnesses to attend an arbitration hearing in a foreign country.
There is also uncertainty in the application of the law. While U.S. law may apply to an agreement either by agreement or by default, the parties may face application of U.S. law as applied by a sole arbitrator in a foreign country or tribunal without U.S. legal training and with no real appellate process to challenge such rulings.
Parties also should be cautious of the application of certain international conventions by reference in contracts. Many of these contain default provisions that essentially fill in missing terms not addressed in the agreements between the parties. For example, the United Nations Commission on International Trade Law's Rules of Arbitration, Article 16, contains a provision that allows an arbitrator to decide where a case will be heard if the parties have not otherwise agreed on a location, so a California company may find itself arbitrating a dispute with an Italian company in Sicily just because the parties failed to negotiate and address this in their contracts.
Another factor businesses should consider is that there is no right of appeal for decisions of arbitrators until a final award or order is entered.
Also, while arbitrators generally will enforce clear contractual terms agreed to by the parties, without such terms they may draw on their own legal traditions and experience.
There are a myriad of other issues to explore before embarking on international relationships that may result in international arbitration. Carefully drafting arbitration clauses with specific knowledge of the applicable rules and law and location agreed upon is the key to reducing uncertainty and increasing predictability and fairness.