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When business internationally issues settling legal disputes international transactions. What practical consideration taking legal actions a foreign business partner-based country? Which laws precedence.
Dealing with conflict in the new global economy
The rise of the new global economy has generated profits for many enterprises because of the connections it has fostered. However, in addition to the positive benefits of international agreements, there has also been a rise in international disputes. "As international commerce increases, so does the volume of international business disputes…new inbound and outbound foreign investment surpassed previous levels. Some of these deals will fail, and not all contracts will be performed as planned" (A new way to resolve international business disputes in Illinois, 2013, CIDRA). Two of the most common methods of dealing with international disputes between business entities are international litigation and international arbitration. Litigation has certain superficial advantages, from the point-of-view of a firm: "judges are mostly independent, filing fees are much less than arbitration fees, and one has the right to appeal" (Aliment 2009: 12). So why do so many international firms prefer arbitration? The difficulty in determining which laws should preside in a dispute between parties from different nations has caused a shift in the international business community in favor of arbitration. This paper suggests that arbitration is the most effective solution to legal problems between business entities from different nations, when it is unclear which laws of the land apply.
First and foremost, there may be a substantive legal conflict between the laws of the business' home country, with which it is familiar, and the laws of the foreign business partner. This lack of cultural legal fluency can make arbitration, where the negotiating partners set mutually-agreed upon terms for one another, seem preferable to litigation. Even between two relatively similar nations such as say, France and the United States, there are many legal differences governing business. The French justice system is underlined by a different conceptual foundation -- it is inquisitorial or fact-finding rather than adversarial like the U.S. And it is also bound by regulations governing the EU, unlike the United States. "Most businesses are reluctant to be subjected to another country's unfamiliar laws, legal process, jury systems, and discovery procedures. Some question the partiality of local judges and attorneys toward local business. There are also problems with the unpredictability of outcomes and enforcement of judgments from one country to another" (A new way to resolve international business disputes in Illinois, 2013, CIDRA). Instead of procedural and jurisdictional wrangling, arbitration allows for a 'meeting of the minds' and establishes common ground between the participants even before talks begin. This common ground can be fruitful in reaching a final decision.
Another issue is that "confusion, delay, and expense may be visited upon both parties in the event of parallel litigation in competing jurisdictions, with the possibility of conflicting judgments" (Aliment 2009: 15). When it is possible to get a different judgment or settlement, there is often a strong incentive to file parallel litigation. This acts as a form of 'risk mitigation' in case the initial decision does not go the plaintiff's way (Aliment 2009: 16). However, the parallel litigation may result in such prolonged legal action there is little ultimate value for either party in the result, hence once again a preference for arbitration.
Large, international businesses may also be wary of the public outcry that may be generated by a protracted legal battle, while arbitration can remain confidential, according to the agreed-upon terms of the parties. Arbitrations tend to be speedier, with some lasting as few as two days, versus court cases which can take years to settle. Also, arbitration often conveys a greater sense of overall control upon the proceedings. "The ability to select the arbitrator, the language of proceedings, and the place of hearings are other important reasons that favor commercial arbitration. In addition, complicated rules of procedure and evidence can be modified or excluded in arbitration but not in court proceedings. The extent of the award or type of damages may be contemplated beforehand, which allows parties to draft a proper arbitration clause and plan ahead with appropriate reserves" (Aliment 2009: 13). In arbitration, it is thought there is less likely to be 'winners' and losers' because the…[continue]
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