Theme 7. Regulation of international commercial disputes

7.1. International disputes

7.2. Applicable law

7.3. Competent tribunal

7.4. International Commercial Arbitration

7.5. Execution of legal and arbitral decisions

7.6 Choosing a regulation process

7.1. International disputes

International disputes cover a greater complexity than conflicts which occur between companies of the same nationality, applying their national law before their national courts of law. In truth, imagine that you are in conflict with an Iranian purchaser. Do not think that the conflict which you systematically oppose will resolve itself in your national courts, by applying your national law, and even less that it could be clear cut before an international tribunal implementing a universal international law.

The laws which govern international disputes are sometimes of a national order, sometimes of an international order. But these questions can equally be governed by the parties I the contract thanks to the principle of the autonomy of their willingness which allows them to decree the rules applying to their contractual relations themselves. In this way, the parties can, through their contract, make the applicable choice of law and the competent tribunal in the case of dispute. Moreover, if they wish, they can substitute a discount for the competence of the national judge and submit it to a private judge. This is what is known as arbitration.

7.2. Applicable law

It could be a facility for the states to require the national judge to always apply its own internal rules, even for international contracts. However, this would amount to denying all specifications for situations of an international character. Also, different state legislators have progressively admitted themselves that the judge can apply, to a certain extent, (foreign law must not oppose public order for example) another law which in its own situation resents an element of extranity. It results that the applicable law is not necessarily that of the submitted judge.

In view of this observation, it is fundamental to establish under which law is the contract subject. Depending on the applicable laws, the results, rights and obligations of the contract can vary enormously. For example, some countries require the contract to be written, others not. According to certain laws, people not included in the contract have specific general rights which, according to another law are not the case. It is therefore essential to establish from the beginning which is in force for a contract.

a) The principle of the intention of the parties

According to the principle of the intention of the parties, recognised in the large majority of states, they are free to organise the contract and to create obligations between themselves (as long as respect the rules relating to good behaviour and public order). This autonomy gives them a large freedom regarding the choice of law which governs their agreement.

The two parties are in a position to choose one of three possibilities:

• retain the law of the exporting country: This will very often be the wish of the seller that sees his rights applying themselves, given that it concerns whoever would know it the best. This is not however always the best solution. In fact, some legal systems, such as french or belgian protect the purchaser more strongly,

• retain the law of the importing country: This right is perhaps more interesting for the exporter as it is less restricting, but then it necessary to know and control it, as it could be dangerous to be submitted to a totally or partially unknown regulation,

• retain the law of a third country: This choice enables legal nationalism to be neutralised. It is often a choice used in a commercial concern for compromise or convenience reasons (in the case where the competent tribunal belongs in this third country).

In the head of exporter, swiss law is often recommended in this respect as it is rather favourable to the exporter and above all it has the advantage of appearing as a neutral state which is an asset for the parties in the behaviour of commercial negotiation. Generally it is advised to choose the law of a country belonging to the same legal system as your own.

It is possible that the parties have not indicated in the contract the applicable law for one of the following reasons: general sales conditions and the conflicting sales cancelling themselves, the negotiators establishing an arbitration clause leaving judges to decide its care, or more simply, the parties have not made a choice by oversight or ignorance. Not choosing the applicable right can have serious consequences as the parties accept what is applied of the arrangements which they do not understand. In fact many legal systems can find themselves in competition: seller's rights, purchaser's rights, rights in the contract's place of execution. The silence of the parties will drive the submitting judge to a dispute to try and find signs (place of formation of contract, carrying out, payment) in order to join the agreement to a legal system by finding the implicit willingness of the co-contractors, or will refer themselves to an international agreement that the purchaser's and seller's countries have ratified. It results in an undeniable loss of time as well as a further incertitude which are the little favourable elements of business requirements.

b) International agreements

There is no universal system to decide on the applicable law. Faced with legal insecurity which results in a multitude of rules for internal conflict certain states are brought together to agree on a communal rule applying to them.

Two international conventions have been drawn up in order to establish international rules on the subject of law applying in international contracts. However, these conventions are principally ratified by European states and therefore concern quasi-exclusively European business relations.

1. The Hague Convention

The Hague Convention of 15th June 1955 on the law applying to sales of an international nature of goods controlling the application of the law in the seller's country. However, exceptions to the rule exist. For example, quoting that the convention determines that the law of the purchaser's country applies when the seller is displaced to it's client's country in order to conclude the contract.

2. The Rome Convention

The Convention of Rome of 19th June 1980 on the law applying to contractual obligations recommends the principle of contractual freedom. Failing that, the contract will be governed by the law of the country with which it presents the narrowest links, that is to say the country of the contractor which supplies the provision qualified as "characteristic" to know most generally: the seller's law in a sales contract; the agent's law in the case of a distribution contract etc.