Businesses aiming to expand their reach outside their home territory need to consider the legal and practical aspects of forming international partnerships. One key aspect is the formation of a joint venture agreement between the partners. While traditional court-based litigation systems are available for disputes, they work differently in an international context. One option that businesses could consider is international arbitration, an alternative method of settling disputes through private adjudication rather than through court. In this blog post, we will provide insights into what to look for in forming an international joint venture agreement, with a particular focus on the role of international arbitration.
Clear Provisions on International Arbitration
First and foremost, the joint venture agreement should have clear provisions that stipulate international arbitration. The provisions should detail how disputes should be brought to arbitration, who will appoint arbitrators, and the location of arbitration. It is essential to define these provisions in detail so that they cannot be interpreted arbitrarily and create confusion that can further complicate matters. For an example of provisions, please visit Sample Arbitration Clauses – Atlanta International Arbitration Society (arbitrateatlanta.org)
Choice of Arbitration Institution
Parties can choose to use various arbitration institutions for their arbitration. The most common are the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA). It is necessary to have an agreed arbitration institution to ensure credibility and security in the process. Businesses would do well to research arbitration options and institutions to understand which would work best for them in terms of cost, industry, and location.
Language of the Arbitration
The language in the arbitration process must be explicitly clear in the joint venture agreement. It is advisable to use a language that both parties are comfortable with. Depending on any subsequent legal proceedings, a wrong choice of language could prove costly.
The Role of the Arbitrators
Another important consideration is the role of the arbitrators in the dispute resolution process. An arbitrator in international arbitration should be an expert in the relevant industry or subject; they should be independent, impartial, and trusted. It is also recommended that at least one arbitrator is fluent in the language used to prevent claims of bias or unfairness. Ideally, the arbitration tribunal should consist of three arbitrators.
Enforceability of the Arbitration Award
The ability to enforce an arbitration award is a critical factor in the use of international arbitration. It’s also where the most significant benefits lie. If one party does not comply with the decision of the arbitrators, the award can become enforceable in the courts of most countries under the New York convention. Parties should, therefore, ensure that their dispute resolution mechanisms are consistent with the regulations of the country where they intend to enter into business.
Venturing into International business presents many benefits, but it comes with its own set of legal challenges. International Arbitration is one of the dispute resolution mechanisms businesses should consider when forming international joint ventures. At the heart of it all are the essential clauses in the joint venture agreements that form the foundation of the arbitration process. By ensuring that the agreement clearly defines the institution, language, location, and arbitrator role, businesses can ensure the efficient and fair resolution of any disputes. When in doubt, a well-informed legal consult should assist in drafting comprehensive, enforceable terms that align with both parties’ interests. For more information on how Joint Ventures differ from Partnership, visit International Joint Venture v. International Partnership – What’s the Difference? – Transnational Matters