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The Role of Contracts and Arbitration in International Business Law: Challenges and Solutions
The Role of Contracts and Arbitration in International Business Law: Challenges and Solutions
When certain legal requirements are satisfied, contracts may be useful instruments for business. Courts should uphold the terms that parties have agreed upon and establish suitable default procedures if disagreements occur. To avoid enforcing contracts in favour of one party based on irrelevant factors, courts must maintain their impartiality. Contracts are under additional strain in international transactions because parties are unable to determine which law will be applied to them. The various business legal regimes and judicial systems that exist among the nations are the cause of this issue.
Harmonization can take many different forms. One such form is the establishment of uniform substantive business law for foreign transactions in every state through an international convention. However, local public policy issues and the difficulties of reaching a consensus among key governments would make this impractical. An additional choice would be for all states to consent through treaties to uphold arbitration provisions in contracts for international commerce. This would enable parties to select the state that has the best legislation for their agreement, increasing predictability in the law. A decentralized method of harmonization, the New York Convention mandates that courts uphold judgments from international arbitrations, but it also gives them the authority to reject arbitration decisions that do not adhere to regional obligatory laws. Compared to a centralized method, this decentralized model is better because it allows parties to select the best applicable law and venue, negating the necessity for each state to adopt a uniform substantive business law and uniform interpretation of the law.
Decentralized arbitration is frequently criticized for having the ability to break obligatory norms and result in expensive legal action. Although arbitration verdicts may be reviewed by national courts to make sure they don't break any laws, doing so may prejudice foreign parties and necessitate expensive legal action. Arbitrators may disregard required rules if courts execute arbitration decisions without de novo review because merchants prefer to enforce written contracts. However, the advantages of arbitration—predictability, impartiality, and cost savings—are lost if courts subject arbitration rulings to de novo scrutiny to make sure necessary standards are followed. In the recent Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. case before the U.S. Supreme Court, the enforcement conundrum was disregarded, which resulted in an unclear ruling. Opponents contend that this ruling might not accomplish the advantages of international arbitration as well as respect for statutory regulations. In support of the ruling, this essay argues that courts cannot uphold required regulations and maintain the benefits of the international arbitration system, including its neutrality and financial savings.
The article makes the case that random de novo examination of arbitration decisions is the best course of action for courts. This will lead to arbitrators regularly adhering to mandatory requirements and courts not constantly reexamining arbitration rulings. Neutrality and cost savings are frequently attained with this approach. Mitsubishi is said to have carried out this tactic by establishing circumstances in which parties are uncertain about the response that U.S. courts will provide to arbitration rulings that deviate from obligatory regulations. The assumptions of many arbitrators, foreign courts, and arbitrators' motivations are also covered in the study. It is possible for arbitrators to periodically or even completely disregard obligatory rules, leaving only the PURE and NO ARBITRATION equilibria, based on the presumption that they are more concerned with maintaining their reputation for doing so than with having their rulings enforced.
The function of Japanese courts and Japanese law are also discussed in the article. The equilibria are predicated on the following assumptions: the contractual contingency favours J; A cannot sue in a U.S. court until after the arbitrator rules against him, and the obligatory rule either applies in A's favour or does not apply. A will not have a basis to file a lawsuit in a U.S. court if the arbitrator rules in favour of A and the contractual contingency benefits A and the rule does not apply. Despite the expenses and prejudices, the analysis indicates that it is possible to have an international arbitration system that adheres to obligatory regulations and does not require frequent court review. If courts evaluate arbitration decisions in a probabilistic manner, this system may be possible. Such a mechanism may have been created as a result of the Mitsubishi case, as international arbitrators are worried about their standing as enforcers of necessary regulations. The model should be extended to domestic arbitration under the FAA, appellate review of trial court judgments, and judicial review of agency activities. Additional studies should concentrate on the empirical assumptions of the model and examine the variations across required provisions.
- The New York Convention enables a decentralised approach to arbitration enforcement, allowing parties to select favorable laws and venues while maintaining legal predictability.
- Arbitration serves as a vital alternative dispute resolution mechanism in international transactions, ensuring impartiality and reducing legal uncertainties.
- Striking a balance between arbitration efficiency and regulatory compliance is crucial, necessitating random de novo examination of arbitration.
