Anticipating Dispute Resolution through Agreement

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 it is to be enforced.

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 other than the residence country, if the agreement or at least one of the parties to it has some connection with such a country. For example, it may be sufficient that the defendant has enforceable assets in that country. 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.

The parties are usually obliged to provide evidence on the content of the law of a country other than the one where the court is located, and providing evidence to the court on the content of another legal system is in practice often costly, cumbersome and uncertain.

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 in the agreement.

Choosing arbitration as a dispute resolution mechanism is popular in international trade, since enforcement of arbitral awards is widely accepted under an international agreement. 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, the arbitration procedure is usually considerably more expensive than court proceedings, due to the fees of the arbitrators and the management fees of the arbitration institution. On the other hand, the appeal procedure does not entail any additional costs, as is often the case in ordinary courts.