RISKS IN SELECTING THE WRONG GOVERNING LAW AND FORUM

Many of the legal risks in international business revolve around the concern of whether a dispute will be fairly and timely resolved in a foreign country. Individuals and companies seeking to conduct business abroad can mitigate such risks by wisely selecting the governing law and forum provision that will protect their conduct of business in each foreign country. Fortunately, there are only two main options to choose from: (i) arbitration under an internationally known arbitration law and body; and (ii) a foreign court under foreign law. This article analyses each option, provides tips for ensuring the option selected is written in a manner that is enforceable, and explains the importance of permitting injunctive relief so that a court can quickly stop a party from causing harm until a final and binding decision on a dispute is obtained.

Both arbitration and a foreign proceeding have their advantages and disadvantages, and neither option is necessarily the best choice in every situation. To determine the best choice, each of the following issues must be analysed: (i) the predictability of judicial decisions (including the corruptness of the judiciary); (ii) the length of time it will take for an arbitral or judicial decision to be made within the country; (iii) the costs for obtaining an arbitral or judicial decision; (iv) whether a decision is appealable; and (v) the enforcement of a judicial or arbitral decision both from within the foreign country and outside the country.

The modern trend has been for arbitration to be the default choice in international business, but while proponents of arbitration are adamant that it is always the best option, companies should recognise that arbitration is often just as costly and time consuming as a judicial proceeding. Furthermore, arbitrators are not required to follow any precedence of legal decisions, and this permits them to resolve matters in an unpredictable manner. Judicial decisions, on the other hand, are intended to follow legal precedence, and this allows counsel to better predict the decision and determine a party’s best strategy for obtaining a favourable decision. Moreover, an arbitral decision is not appealable. Therefore, if the arbitrators came to an incorrect decision, there is no course of correction. In contrast, judicial decisions are typically appealable.

Jul-Sep 2014 Issue

Gould & Ratner LLP