Businesses that operate under separate court jurisdictions must agree on one of several approaches when resolving disputes. Determining which resolution is appropriate may depend on the circumstances surrounding the dispute. Sometimes, the contract that was created when the businesses originally began their trade may outline an agreed-upon approach that each side is expected to honor for resolving an international dispute. Arbitration, a legally binding settlement by a third-party arbitrator, is one international dispute resolution method that most businesses may adopt. Mediation, or conciliation, is another international dispute resolution method in which unbiased solutions are recommended, but not legally binding.
A dispute may arise among foreign businesses as a result of territorial or commercial contract issues. Relative to territory disputes, one party may accuse the other of not honoring a previously held agreement on land use. Commercial disputes may result from disagreement with a transaction among two or more businesses.
To circumvent court proceedings that may hamper business relations, all sides usually agree to participate in some type of international dispute resolution. Regular court proceedings may prove tricky since jurisdiction would normally determine which side prevailed. When each business is headquartered in different countries, the law in one country might not apply equally to all businesses affected. As an alternative to going to court, each party may agree to have an unbiased negotiator settle the dispute through arbitration or mediation.
In most countries, international commercial arbitration is a widely acceptable mechanism for resolving a dispute when a breach of the business contract occurs. This type of alternative dispute resolution (ADR) is reviewed by one or more professional arbitrators. During arbitration, a settlement is negotiated among all parties. Most courts recognize any settlement reached during arbitration as legally binding. Typically, using arbitration does not cost as much as a court process in money or time.
An arbitration clause is often included in an original business contract, and determines the manner in which disputes are resolved. Aside from selecting arbitration as a form of international dispute resolution, the clause may outline the procedures to follow during the arbitration. Each party may select the arbitrators or assign this responsibility to an international institution that voluntarily handles international business disputes.
A mediation clause might also exist in a business contract, and could occur before going to arbitration. When each party elects to use mediation for resolving international disputes, a third party with no personal investment is selected to mediate the terms of the agreement. All businesses involved in the dispute typically have volunteered to accept the solution recommended by the mediator. Any agreement reached during mediation is not legally binding in the respective countries, however.