Agreeing on dispute resolution and jurisdiction is as important as agreeing on applicable law. This is to enable the parties to avoid a situation where the decision of a court cannot be enforced in the country, where the enforcement needs to be carried out. There is no reason to risk enforcement of claims arising from the agreement and a court decision. In such case, the only possibility could be to initiate court proceedings in the defendant’s country.
When agreeing on dispute resolution, the parties should in the first place decide, whether possible disputes are to be resolved in court proceedings or in arbitration. In case each party is resident in an EU member state or in Norway, Switzerland or Liechtenstein, the parties may agree that a possible dispute is to be resolved in court proceedings in either party’s country of residence. It is also possible to agree on jurisdiction of courts in another EU member state, Norway, Switzerland or Liechtenstein, if such country is connected to the agreement or to the parties. In case dispute resolution is to take place in general courts, it is also advisable to choose the domestic law of such courts as the applicable law, since each court is familiar with its domestic law.
In case the parties agree on arbitration, they should at the same time agree at least location of the proceedings and the applicable rules of arbitration. It is also advisable to agree up other details, such as the number of arbitrators and the language of the proceedings. The parties are free to agree on composition of the arbitral tribunal, but it is more common to use the rules of different arbitration institutes, such as the Arbitration Institute of the Central Chamber of Commerce of Finland, or the International Chamber of Commerce, which operates the International Court of Arbitration located in Paris. When the parties have agreed upon application of the rules of an arbitration institute, it is advisable to use the model dispute resolution clause issued by the institute in question.
Choosing arbitration as a dispute resolution mechanism is popular in international trade, since enforcement of arbitral awards is widely accepted. Arbitration is also relatively quick, flexible and non-public. Appeal is usually not possible, which means that a final, binding decision is obtained without the need for several hearings in different courts. The parties may choose their own experts as arbitrators. However, arbitration proceedings are normally considerably more expensive than court proceedings.