Logistically challenging lawsuits can be avoided

By James Cole

Imagine this Monday morning surprise: You arrive at your newly outfitted lab in University Research Park to begin work with a shipment of biological samples from New Zealand only to discover the cryogenic materials have thawed in transit.

The wire transfer has long gone through to the vendor in Auckland. How do you recover your loss?

Hopefully, the contract or purchase order covering this shipment provides for international arbitration of disputes in a forum that does not require filing a lawsuit in New Zealand. That would be expensive, complicated and logistically challenging to say the least.

Process of choice

Thankfully, a new method of resolving disputes between citizens of different countries -- International Commercial Arbitration -- is rapidly becoming the process of choice.

In fact, throughout the world countries have adopted treaties and laws to accommodate this growing need created by the global marketplace.

Organizations such as the International Chamber of Commerce (ICC) and the International Centre for Dispute Resolution (ICDR) provide rules, arbitrators and facilities for implementing the process.

Even law schools, such as the University of Wisconsin Law School, are offering new courses to train future lawyers in the rules and procedures for International Commercial Arbitration.

International Commercial Arbitration, just like arbitration of local disputes, is only available if the parties to a transaction agree to the process. That agreement can easily be incorporated into a purchase order form or purchase contract.

But without an agreement, the sole recourse is to file a lawsuit where the other party can be sued. For example, with our hypothetical situation, the only option would be a lawsuit filed in New Zealand.

Arbitration defined

That begs the question, what is arbitration? Simply put, according to the American Arbitration Association (AAA), it is "the submission of a dispute to one or more impartial persons for a final and binding decision."

It is generally recognized as a streamlined and cost effective method of resolving disputes. The process can be as informal as the parties choose to make it -- often handled with written submissions, limited witness examination and argument to the arbitrators by attorneys for the parties.

Because of the benefits of arbitration, international treaties and conventions have been adopted by most of the major trading nations of the world. The most important and widely utilized is the New York Arbitration Convention adopted by most developed countries.

The key provision is that an arbitration award made under the convention is enforceable in any nation of the world in which the convention has been adopted.

Rules and procedures for implementing international treaties have been developed by organizations such as the ICC and the ICDR.

They provide the mechanics of actually initiating and conducting an arbitration, including the selection of arbitrators.

Determining arbitration site

The location of the arbitration is usually dictated by the contract the parties enter into. For example, a purchase order may provide language as simple as:

"Any disputes which may arise out of or in connection with this agreement shall be resolved by arbitration in accordance with the rules of arbitration of the International Chamber of Commerce. The seat of the arbitration shall be (Madison, Wisconsin USA)."

It is generally recommended, however, that the arbitration clause in such an agreement be more detailed to specify the method of selecting arbitrators, the time limits to be imposed on making claims and what country's laws governing sales contracts will control.

Often a compromise position on governing law specifies that the United Nations Convention on Contracts for the International Sale of Goods (CISG) shall apply. The CISG provides similar rules governing sales contracts to those adopted in all 50 of the United States under the Uniform Commercial Code.

Anyone dealing with international commercial transactions should seriously consider including in their purchase agreements language calling for international arbitration as the governing dispute resolution process; or, be prepared to go "down under" to sue for their losses.

James Cole is an attorney at Quarles & Brady specializing in intellectual property and commercial litigation.

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