International businesses may encounter disputes that require resolution through arbitration or mediation. These methods are often less costly and time-consuming than traditional court proceedings. An arbitration clause in a contract outlines the procedures for resolving disputes, while mediation involves a third party mediator who suggests non-binding solutions. Both methods are widely accepted for resolving international commercial disputes.
Businesses operating in separate court jurisdictions must agree to one of several approaches when resolving disputes. Determining the appropriate resolution may depend on the circumstances surrounding the dispute. Sometimes, the contract that was created when businesses originally began trading may outline an agreed-upon approach that each party should honor in resolving an international dispute. Arbitration, a legally binding settlement by a third-party arbitrator, is an international dispute resolution method that most businesses can adopt. Mediation, or conciliation, is another international dispute resolution method in which impartial, but not legally binding solutions are recommended.
A dispute may arise between foreign companies for territorial or commercial contract issues. In land disputes, one party can accuse the other of failing to honor a previously concluded land-use agreement. Commercial disputes can arise from disagreement with a transaction between two or more businesses.
To evade legal proceedings that could hamper trade relations, all parties usually agree to participate in some type of international dispute resolution. Regular court proceedings can prove complicated as the jurisdiction would normally determine which side prevails. When every business is based in different countries, the law of one country may not apply equally to all affected businesses. As an alternative to going to court, either party may agree to an impartial negotiator to resolve 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 commercial contract occurs. This type of alternative dispute resolution (ADR) is reviewed by one or more professional arbitrators. During arbitration, an agreement is negotiated between all parties. Most courts recognize any settlement reached during the arbitration as legally binding. Typically, using arbitration does not cost as much money or time as a judicial process.
An arbitration clause is often included in an original business contract and determines how disputes are resolved. In addition to selecting arbitration as a form of international dispute resolution, the clause may outline the procedures to be followed during arbitration. Each party can select arbitrators or entrust that responsibility to an international institution that voluntarily handles international trade disputes.
A mediation clause could also exist in a commercial contract and could occur before going to arbitration. When each party chooses to use mediation to resolve international disputes, a third party with no personal investment is selected to mediate the terms of the settlement. All businesses involved in the dispute generally volunteered to accept the solution recommended by the mediator. However, any agreement reached during the mediation is not legally binding in the respective countries.
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