Resolution of International Commercial Business Disputes and Enforcement of Commercial Obligations Worldwide


Each year there is a significant increase in the number of business transactions that cross international borders. The transfer of goods and services, foreign direct capital investment, and the financing of commercial transactions often involve multiple jurisdictions and parties of multiple nationalities.

Parties to multinational transactions need to be mindful of the myriad of laws and regulations that control the transaction, and potential conflicts between those laws and regulations.

For example, if a dispute arises between the seller and buyer of goods, and the parties look to the courts for resolution, courts of more than one country may have jurisdiction.

In many cases, the court system is not the ideal forum to resolve international commercial disputes. International business men and women have the option of pursuing arbitration, mediation or other alternatives. Depending on the circumstances, these processes may be preferable.

International trade gives rise to issues that would not be of concern in cases of the sale of goods or services between individuals or entities located in the same country. For example, each country involved in the export, import or transshipment will have its own regulatory structure to affix tariffs, or control prices, quality and quantities.

In addition to the national regulatory schemes, there are many international agreements that impact trade and other commercial transactions, like the World Trade Organization (“WTO”) and General Agreement on Tariffs and Trade (“GATT”).

International commercial transactions should always be documented by contract, and that contract should specifically state the jurisdiction and law that the parties wish to control the transaction. Of course, each sovereign country has the right to enact legislation that can not be “contracted away” by the parties, like anti-trust and securities laws, bankruptcy laws and laws relating to public health and safety.

If the commercial transaction involves the sale of goods, it is advisable that the parties stipulate that the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) controls.

If the sale of goods and services are achieved through the establishment of sales agents or distributors in a foreign county, the laws of that country should be analyzed to determine if they are provided extraordinary protection.

For example, manufacturers from all over the world sell automobile components to the automobile companies that are headquartered in Detroit, Michigan USA. there are hundreds of manufacturers representatives that represent those sellers/manufacturers to the automobile companies. The manufacturer’s representative contracts generally provide that the agent’s compensation is computed as a percentage commission, for example, 5% on the US dollar volume sold to the automobile company. The commissions are paid for a specific term, and sometimes for the life of the part being produced.

This system of sales representation has worked well for the sellers, representative and automobile companies for close to 100 years. However, some sellers try to abuse the process by devising schemes to circumvent the payment of the commission to the sales agent.

In Michigan, and many other states in the US, there is legislation that protects sales agents. If a seller/manufacturer does not pay the commission in a timely manner, the courts have the authority to award double (2X) the commission to the sales agent, as well as award of costs and attorney fees associated with the collection. MCL 600.2961 (5).


A. Contracts Between Private Parties.

The first question to ask when entering a new market is whether private parties or business entities have the right to contract without obtaining permission from the state. This is possible in virtually all civil law and common law countries.

Of course, the form of the contract may be different from country to country. However, the parties have the same objective in mind, that is, to ensure that the contract that they enter into properly represents their intentions, it will be honored by the parties and, if not, enforced by a third party, such as a court or arbitration panel.

B. What Law Will Control the Transaction?

If the parties agree to the law of the contract, will the courts and regulatory agencies of the country where the transaction is taking place honor their choice?

The United Nations conventions, or the European Communities Comments on the Law Applicable to Contractual Obligations may be useful alternatives to choice of law of one of the parties’ jurisdictions.

C. Road Map.

1. Heads of Agreement.

International business executives often memorialize their discussions in the form of a document called Heads of Agreement, or Letter of Intent.

It is important to determine what constitutes a binding and enforceable contract in the country where this document is signed, to avoid misunderstanding, or unanticipated liabilities.

Unwary business executives may find themselves obligated for the costs and expenses of a deal that has gone bad, if that is the tradition of the host country.

2. Contract.

This is the document that all parties should consider binding and enforceable. Often the contract form looks the same, especially if the parties are all from same common law or civil law countries. However, there may be major differences that would be obvious to an attorney from that jurisdiction.

It is very prudent to consult with legal counsel from each jurisdiction involved to make certain that all of the required elements to achieve an enforceable contract are present.

3. Witness and Notary Requirements.

In common law jurisdictions like the US and UK, the notary function is limited to attesting to the fact that the individuals signing the documents are who they say they are, and appear to be doing it freely, and not under duress.

In civil law countries, the process is more formal. The notary public often undergoes extensive training, and can opine whether or not the contract being signed meets all civil law requirements for enforceability.

4. Risks.

As mentioned above, it is important to determine the ramifications if the parties do not complete the transaction. Who bears the loss, if any? Consider losses due to variations of foreign exchange, force majeure, war or acts of God.

In some jurisdictions, cancellation due to change of circumstances, or a misunderstanding between the parties, is not excused.

5. Term and Termination.

It is important that the parties think through and document the length or term of the agreement, and the consequences if the agreement is terminated, either by reason of reaching the end of the term, or breach. Detailed provisions that address this issue can save the parties time and money because they can avoid turning to third parties to resolve disputes.

6. Dispute Resolution.

The parties to a contract should clearly set forth the method of dispute resolution that they prefer. That is, litigation, arbitration, mediation, or alternative dispute resolution methods. This issue is addressed in detail seriatim.


It is often useful to incorporate International Chamber of Commerce terms of trade by reference into the contract INCOTERM – which provide well developed and useful precedent, for example F.O.B. (free on board) and F.A.S. (free alongside ship).

In international trade transactions, it is important to identify the additional documentation that the parties require. For example, invoices, packing lists, bills of lading, certificates of insurance, bills of exchange, letters of credit, certificates of inspection of quality, customs documentation, e.g., certificate of origin, licenses, health and safety certificates and export declarations.

Service contracts for management consulting, legal or accounting services, advertising, engineering, architecture, and business advisors are very likely to be regulated to protect local professionals.

Franchising. Franchising is an ideal business form for emerging markets. The Franchisor provides time proven methods and procedures to the Franchisee so that the new business owner does not have to learn from making mistakes. The Franchisee still owns the business, and makes independent business decisions on all critical issues. It is often said that, “being a Franchisee is being in business for yourself, just not by yourself.”

Joint Venture. The joint venture arrangement has been very popular in emerging markets, though subject to many disputes because the term has multiple interpretations in many countries.

The most common form of joint venture is the contractual joint venture, where the parties maintain their independent business entities, but agree by contract to cooperate.

The equity joint venture is created by forming a new entity and having each participant own an equity percentage of that entity.

Selection of the business entity in any particular circumstance requires international tax analysis, and consultation with local counsel.

Privatization. Western business making foreign direct investment, or entering into a joint venture arrangement, to acquire a business that has been privatized by the host government, must keep in mind that they are dealing with government officials, or quasi government officials. They are, thus, subject to the anti-corruption legislation like the US Foreign Corrupt Practice Act or OECDA Convention on Combating Bribery of Foreign Public Officials in international business transactions. It is up to the Western business executive to ensure compliance in these situations, not his emerging market counterpart.


A. Accessing the National Courts.

All international disputes can be the subject of litigation in US Courts, with few exceptions. For example, in cases involving foreign governments or government owned companies, the defendant may be protected by the Foreign Sovereign Immunities Act, 28 USC Sec. 1601 (“FSIA”).

In the US, there are requirements to insure fairness in the process. All US States have what are known as long-arm statutes, which set forth whether or not the courts of the state can address disputes between parties from different countries.

There is no separate federal long arm statute, however, the federal courts under their rules of procedure adopt the long arm statute of the state where they are located.

Due Process is another standard that insures fairness. The foreign person or entity must have adequate contact or connection with the US forum in order to be subjected to its rulings.

B. Enforcement of Foreign Judgments.

Do the courts of the country where business is being conducted enforce judgments entered by courts of other countries carte blanche, or are there restrictions?

In some countries, the courts will recognize that a foreign court has entered a judgment, but require the parties retry the case in their jurisdiction.

In the US, the courts recognize and enforce judgments from foreign courts under the Uniform Foreign Money Judgments Recognition Act (“UFMJRA”), or state laws that adopt the common law concept of comity of nations.

C. International Commercial Arbitration.

This is currently the preferred method of international dispute resolution. It is well developed, and respected by virtually all trading countries.

All of the complex issues that arise in international litigation can be avoided if the parties to the commercial transaction insert an arbitration clause into their contract.

An ideal method is a multi-step process, using mediation first (see below), and if that is not successful, binding arbitration.

The international treaty to enforce arbitration awards, the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), has over 100 signatories, including the US and Vietnam. There is no such treaty relating to court judgments.

Though it is possible to contract for arbitration that is not administered by a third party, statistics show that an independent arbitrator or arbitration panel increases the likelihood of reaching resolution.

The most well-known third party administrators are The International Chamber of Commerce – Paris, American Arbitration Association – New York and the London Court of Arbitration.

Generally, the parties stipulate to use the rules of the organization that they have designated to administrate the arbitration. An alternative is to specify that the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) apply.

The following issues should be addressed when drafting an arbitration clause for the contract:

  1. Where will the arbitration take place? Is there a benefit to having the matter arbitrated in a neutral country? Are there less costly alternatives in the country where the business is being conducted? Do the arbitration panels in those countries have a reputation for fairness and independence?
  2. What law will govern the arbitration?
  3. What language will the arbitration be conducted in? Is simultaneous translation required?
  4. Who will pay the expenses of the arbitration? Do the parties share the expenses equally, or should the prevailing party be reimbursed for the costs and expenses as part of the arbitrators award?


Mediation is a process that has emerged worldwide over the last 15 years. A third party facilitator skilled in the mediation process meets with the parties to a dispute and works with them to design a resolution of their dispute. The settlement is reduced to writing, signed, and at that point becomes a binding contract, enforceable by the courts.

Mediation is not binding, that is, if the process breaks down, the parties are left to pursue their claims in other venues. As indicated above, the combination of a mediation/arbitration clause in a contract can be very productive. If the mediator can not get the parties to settlement, the matter is converted to binding arbitration.

The mediation process allows the parties to address the issues from the perspective of their respective interests, rather than as adversaries.


The world economy offers new and exciting opportunities to US-based businesses. With that opportunity comes the responsibility of all participants to the transaction to study the business traditions of their counter parts, understand the differences, and work to forge common ground.

This article contains excerpts from a paper delivered by Randolph M. Wright at a conference in Danang, Vietnam July 1, 2002, Legal and Economic Perspectives of Vietnam’s Integration into the World Markets.