Global Disputes: Know Your Options Arbitration, Mediation, Judicial
In the wake of the COVID-19 pandemic, law firms specializing in business disputes, including international trade disputes, are forecasting increased activity. To prepare for the future of a post-pandemic world, the best thing business leaders can do to minimize damage during a new wave of dispute litigation in the law is to understand their options if their business deals begin to unravel.
A recent survey of senior legal and risk management professionals in law firms in the United Kingdom (UK) predicts that a post-COVID increase in corporate and economic disputes is inevitable during the coming year. The final half of 2021 was busy. And 2022 is only going to get busier, say those surveyed.
Ed Poulton, managing partner of the London office of Baker McKenzie, a multinational law firm headquartered in Chicago, agrees that issues related to COVID have minimized the number of disputes. He explains that businesses have been busy with other issues, and are reluctant to risk destroying relationships.
Tackling business-to-business disputes in the courtroom is one way to solve cross-border or international conflicts. Ultimately, a wide range of methods and procedures for addressing conflict are available to global businesses, including negotiation, mediation, mediation-arbitration, international arbitration, diplomacy, and creative peacebuilding. And a strong Global Mindset can help mitigate the damage – or help keep business leaders out of conflict.
Case Studies: Two High-Profile Global Disputes
In April 2013, Apple CEO Timothy D. Cook made the unusual move of apologizing to Chinese customers for his company's warranty policy and promised to make amends. The media in China criticized Apple for offering a one-year, rather than two-year, warranty on iPhones, among other things.
Initially, Apple failed to respond to the complaints. In an open letter written in Chinese, Cook admitted that his company’s lack of communication had led to the perception that “Apple is arrogant and doesn’t care or value consumers’ feedback… We sincerely apologize for any concern or misunderstanding.” In part, Cook’s apology was successful. In Apple’s case, a carefully delivered apology appeared to restore trust.
An apparent lack of trust cost Tiffany & Co. millions of dollars after a deal with Swatch Group fell apart in 2011. In 2007, the two companies entered a joint venture that was supposed to last for 20 years and give Tiffany a better retail foothold in the watch world. The deal began to fall apart in 2011 when Swatch claimed Tiffany was trying to block and delay the joint venture. Tiffany countersued, and the case went into international arbitration in 2012. A Dutch arbitration judge ruled in favor of Swatch and ordered Tiffany to pay nearly half a billion dollars.
Since the proceedings were confidential, it is hard to say exactly what went wrong with the partnership. Forbes contributor and analyst Ariel Adams surmised that Tiffany & Co. perhaps felt their name and prestige were so valuable, that the Swatch Group was working for them. “Clearly they'd never worked with the Swatch Group,” Adams said.
Before one can begin resolving an international business dispute, it is important first to fully understand what the dispute is all about.
Types of International Business Disputes
International business refers to the trade of goods, services, technology, capital or knowledge and intellectual property across national borders globally. Not limited to disagreements between businesses, they may also deal with rules and regulations determined by governments and international law.
International business disputes can fall into several categories:
Dispute on the Sale of Goods or Commodities
The dispute could arise from a number of things, including:
- Cost or pricing issues.
- Payment and economic issues, including timing or mode of payments and conditions.
- Product quantity and quality.
- Delivery conditions, transportation or logistics.
- Other contractual provisions or stipulations. Disputes frequently arise due to unclear stipulations and vague references on written contracts.
Disputes on the Roles of Distributors and Agents
A distributor buys the products or commodities from the manufacturer or original seller and proceeds to sell them. An agent does not buy the products outright but acts on behalf of the manufacturer or original seller.
Disputes on Construction, Engineering, and Infrastructure Projects
Companies involved in these industries often find themselves working in foreign territories and subject to various international rules and regulations. Even local and regional practices may differ greatly from the business’s home country.
Disputes on Procurement
These disputes often cover sensitive topics, such as mandatory requirements to be complied with and deadlines.
Disputes on Intellectual Property
These include disputes on royalties, patent and trademark licensing, as well as the transfer of technology and intellectual property.
Resolving International Business Disputes
There is no fixed rule on how you can resolve a business dispute on an international scale. Choosing the best way means you must consider the type of dispute, laws and regulations of the countries involved and anticipate what other issues or disputes may crop up as you navigate a resolution.
Assessing the factors that make up a specific conflict will help you determine whether to take one of two routes to solve it:
- Jurisdictional (international arbitration and litigation) and
- Non-jurisdictional (alternative dispute resolution or ADR and mediation).
Arbitration is often faster, less costly, and less divisive than going the legal route to court. When two parties in dispute go into international arbitration, both agree to be bound by the ruling or decision of the arbitrator, who will hand down the decision on how to settle or resolve the dispute. There could be a single arbitrator or a panel.
Two types of arbitration include:
- Institutional arbitration: In institutional arbitration, parties decide to incorporate the rules of a recognized arbitration institution and adopt the institution as the appointing authority. There are dozens of international arbitration institutions located around the world. Major institutions include the ICC's International Court of Arbitration, London Court of International Arbitration (LCIA), Permanent Court of Arbitration, International Centre for Settlement of Investment Disputes (ICSID), Arbitration Institute of the Stockholm Chamber of Commerce, WTO Dispute Settlement Gateway and the American Arbitration Associations' International Centre for Dispute Resolution (AAAICDR).
- Ad hoc arbitration: Ad hoc arbitration is any arbitration in which the parties have not selected an institution to administer the arbitration. This offers parties flexibility as to the conduct of the arbitration, but less external support for the process. The arbitration process can be anything the parties want it to be.
Most businesses try to avoid litigation, because of the expense and stress it can bring. Litigation before a judge, in a court or tribunal, is often seen as the last resort when arbitration, mediation, and conciliation are unsuccessful.
Mediation and conciliation involve impartial third parties who are not empowered to impose a binding decision on the disputants. Rather, the disputants are left to try to resolve the dispute amicably by agreement.
Conciliation: Just like international arbitration, there are two types of conciliation proceedings that the conciliator may conduct:
- Institutional conciliation: Organized and managed by an institution that specializes in administering arbitrations. The International Centre for the Settlement of Investment Disputes (ICSID) provides settlements for disputes by conciliation.
- Ad hoc conciliation: Organized and managed by the parties, without the participation or assistance of an arbitral specialist or arbitration institution.
Mediation: The third party, known as a mediator, will examine the claims of the disagreeing parties and, after evaluation, present possible solutions to resolve the problem. Again, mediation also has two types: ad hoc and institutionalized.
Minitrials: The name may sound like a judicial process, but it’s not. It is a shorter non-juridical version of a court trial. It is a private, consensual process where the attorneys for each party represent dispute details in front of a panel of senior executives who are expected to come up with an amicable settlement. Like mediations and arbitrations, Minitrials, constitute unique forms of “alternative dispute resolution” (ADR).
Global Help to Avoid Global Business Disputes
Time-consuming and costly disputes are also a reality of doing business. Typical areas of dispute include payment terms, letters of guarantee, foreign exchange rates, or errors in documentation.
Drafting Contracts to Avoid Disputes:
Most often, disputes will arise from misunderstandings of contract terms. The key to minimizing complications is to draft an arbitration agreement before a conflict arises at the onset of negotiations.
How Does the World Trade Organization Settle Disputes: The World Trade Organization (WTO) has one of the most active international dispute resolution mechanisms. Resolving trade disputes is one of the core activities of the WTO. The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members.
International Chamber of CommerceDispute Resolution Services: The International Chamber of Commerce (ICC) offers international business dispute resolution procedures that are an alternative to litigation. The organization’s globally accessible and completely neutral services are available to anyone: from individuals and private sector enterprises to states and state entities.
Business Disputes: Be Prepared, Know Your Options
Gaining access to a new market can unlock tremendous opportunities. The process can be exciting, and it may be natural for business leaders to focus on the end game. But setting up a new global business relationship requires a cool head with a realistic sense of what the future might bring.
The best part of setting up shop with international business partners is focusing on the deal, products, services, the law, and long-term relationships. It’s essential to make sure someone on your team is thinking about what might happen if things fall apart. It’s a little like a prenup.
When an apology doesn’t clear the air and, if there really is a big surge in post-pandemic international business disputes, you’ll want to be prepared. Arbitration, mediation, litigation. Know your options.