International Dispute Resolution Clauses: How to Avoid an Expensive Mistake
With sushi restaurants, it's the yellowfin. With new houses, it's the windows. With international contracts, it's the dispute resolution provision.
When I review an international contract, I almost always go straight to the dispute resolution provision. It tells me a great deal about the quality of the contract and whether the lawyer who drafted it understands international business.
A well-drafted dispute resolution provision is, above all else, clear. If it calls for litigation, it identifies the court where disputes will be heard and makes clear what law governs the contract. If it calls for arbitration, it identifies the arbitration institution, the legal seat of arbitration, the applicable rules, and the language of the proceedings. It also addresses the selection of arbitrators, the costs of resolving disputes, and the availability of remedies. Those are starting points. Getting them right is more complicated than most businesses, and plenty of lawyers, realize.
I have seen international contracts with excellent provisions on pricing, payment, intellectual property, product quality, and termination that became nearly worthless because of a badly written dispute resolution provision. Sometimes the clause was simply careless. Other times, it was carefully designed to make it so expensive or difficult for one party to bring a claim that the other party could breach the contract with little fear of meaningful consequences.
Arbitration Versus Litigation in International Contracts
International arbitration is often the best way to resolve cross-border business disputes. It allows the parties to avoid litigating in the other side's home courts, select arbitrators with relevant experience, and establish procedures suited to their transaction. One of arbitration's greatest advantages is the relative ease of enforcing awards internationally.
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention, establishes a framework for recognizing and enforcing qualifying foreign arbitration awards. As of October 2026, 172 countries are parties to the Convention. That is a major advantage over court litigation. A judgment issued by a court in one country is not automatically enforceable in another. Enforcing it usually requires a separate proceeding, and the outcome depends on treaties, domestic law, reciprocity, and other requirements in the country where enforcement is sought.
The New York Convention makes arbitration awards substantially easier to enforce across borders, though enforcement is not automatic. Courts can refuse recognition or enforcement on specified grounds, including certain jurisdictional and procedural defects and violations of public policy. Foreign court judgments can also be enforced without a treaty in some circumstances. For example, Chinese courts have become more willing to recognize qualifying American judgments under principles of reciprocity, though enforcement remains difficult. We discuss this in Enforcing U.S. Judgments in China: What Judgment Creditors Need to Know.
When Litigation Makes More Sense
Arbitration is not always the right choice, particularly when dealing with China and certain other Asian countries. For many China manufacturing agreements, we prefer litigation in a Chinese court. If our client's Chinese manufacturer starts using its tooling to manufacture competing products or begins selling its products without authorization, our client needs that conduct stopped. An arbitration award issued two years later does little good if the manufacturer has already taken over the market.
Chinese courts have the authority to grant preservation measures and other relief that can be critical in manufacturing and intellectual property disputes. Arbitration can also provide routes to interim relief, but those routes depend on the applicable law, arbitration rules, institution, and forum. A poorly chosen foreign arbitration provision can complicate efforts to obtain urgent relief against assets or conduct in mainland China. For other China-related transactions, particularly significant commercial transactions not centered on manufacturing misconduct, we often prefer international arbitration. Singapore is a common choice. We also use Singapore arbitration for many Vietnamese manufacturing contracts.
Hong Kong remains an important arbitration center, though our firm more frequently recommends Singapore for certain international transactions than we did in the past. Hong Kong also has a significant advantage that should not be overlooked: under a special Mainland-Hong Kong arrangement, parties to qualifying Hong Kong-seated arbitrations administered by designated institutions can seek certain interim measures from mainland Chinese courts. Choosing between China litigation, China arbitration, Hong Kong arbitration, Singapore arbitration, and arbitration elsewhere requires looking at the actual transaction. Our article on China Dispute Resolution Clauses explains why choosing a forum without thinking through enforcement and remedies is such a common mistake.
How We Decide Between Arbitration and Litigation
At my law firm, it is common for the lawyer drafting an international contract to bring three or four of our lawyers together for a ten- or fifteen-minute strategy session about its dispute resolution provision. These discussions usually involve both international business lawyers and international litigators, and we don't bill the client for them. We do this because the best dispute resolution provision often is not obvious, even to lawyers who regularly draft international contracts.
Every month or so, another lawyer contacts me with a "quick question" about whether a particular court or arbitration institution makes sense for an international contract. I usually explain that I need to review the entire contract and learn more about the transaction before I can give a useful answer. About half the time, the lawyer asks, "Like what?"
I start with the parties, where they are located, and where their assets are. Then I want to know what can realistically go wrong with the transaction. If the other side breaches, will our client primarily want money, or will it need to stop something from happening? How likely is each party to breach? What law governs the contract, and what languages do the parties speak? I also want to know how expensive a dispute is likely to be, whether substantial document production or witness testimony will be necessary, and whether third parties will need to participate. Confidentiality, appeal rights, and the time required to obtain a decision can also matter enormously. The relative financial strength of the parties matters, too. An arbitration provision that works well for a multinational company pursuing a $20 million claim can be disastrous for a small company pursuing $150,000. None of these considerations should be decided in isolation.
The Advantages and Disadvantages of Arbitration
Enforcement. International arbitration awards are generally easier to enforce across borders than foreign court judgments because of the New York Convention. This is especially important when the defendant has assets in several countries.
Neutrality. Arbitration allows parties to choose a neutral forum and arbitrators who understand the relevant legal systems and industries. That can be particularly valuable when neither party trusts the other's domestic courts.
Cost and speed. Arbitration is sometimes faster than litigation, but it can also be extraordinarily expensive. Arbitrators charge fees, arbitration institutions charge administrative costs, and proceedings involving multiple arbitrators, extensive document production, or complicated jurisdictional questions can become very costly. Court litigation can be considerably cheaper in some countries.
Confidentiality. Arbitration often offers greater privacy than litigation, but confidentiality is not automatic. The applicable institutional rules, arbitration law, and contractual provisions determine what must remain confidential. Court proceedings are generally more public, subject to local rules and confidentiality protections.
Flexibility. Arbitration permits parties to tailor procedural rules, including certain evidence and document-production requirements. Litigation is more closely controlled by the court's procedural rules.
Decision makers and appeals. Arbitration lets parties participate in selecting the people who will decide their dispute, including arbitrators with specialized commercial or technical knowledge. Arbitration awards are also subject to much narrower judicial review than ordinary court judgments. That finality can be advantageous when you win and devastating when you lose.
The right choice depends on what your company needs from the process and what it can afford if a dispute arises.
International Contracts Do Not Exist in a Vacuum
A long time ago, a large manufacturing client contacted me for help with an international product recall. One of its products contained a faulty part supplied by a much smaller company. My initial reaction was that our client should seek reimbursement from the supplier and its insurance company. Then I read the supply contract. The contract protected the smaller supplier in virtually every possible respect. This surprised me because large manufacturing companies ordinarily have enough bargaining power to impose their preferred contract terms on smaller suppliers. When I asked the client why it had agreed to such an unfavorable contract, it explained that the company had recently begun using that contract with its suppliers because someone had told management it was well drafted.
The contract had been prepared by a non-lawyer in the supply chain department who copied it from another large company's agreement. Unfortunately, the agreement he copied had been written to protect a parts supplier rather than a company purchasing parts. The contract was indeed excellent. For the other side. Our client ended up paying every dollar of the recall. I tell this story because the same mistake occurs with international dispute resolution clauses. A provision that works perfectly for one company can be terrible for another, even when the two companies operate in the same industry. Copying a clause from an unrelated transaction without understanding why it was written that way is dangerous.
A Bad Dispute Resolution Clause Can Be Worse Than No Clause at All
Years ago, I participated in a seminar panel on how to write effective arbitration provisions. All of the panelists agreed on one point: a bad dispute resolution clause can be worse than having no dispute resolution clause. Without a clause, the parties at least have the opportunity to determine jurisdiction under the applicable legal rules. With a badly drafted clause, they can spend months or years fighting about what they supposedly agreed to before anyone considers the actual dispute.
Our international dispute resolution lawyers regularly review contracts containing provisions that make the process of resolving a dispute unnecessarily complicated and expensive. Some are simply poorly drafted. Others appear to have been written by lawyers who understood exactly how the provisions would disadvantage the other side.
Arbitration Clauses Designed to Make Claims Difficult
One problem we frequently encounter is a dispute resolution clause that requires the parties to complete a series of vaguely defined steps before arbitration can begin. The contract might require 90 to 180 days of negotiations before either party can proceed. It might insist that the negotiations take place in person in the foreign company's home country. If those negotiations fail, the parties must attempt mediation. The contract does not identify the mediator, the mediation rules, or how the mediation process begins. It may require another substantial waiting period. Only after completing these steps can the injured party commence arbitration, which may require three arbitrators, proceedings in a foreign language, and hearings in another country.
None of these requirements is necessarily unreasonable on its own. In combination, they can make a relatively modest claim economically impossible to pursue. The problem becomes worse when the clause does not specify how the arbitrators will be selected or how the parties can move forward if one side refuses to cooperate. A company with a $200,000 claim can find itself facing legal and arbitration costs approaching or exceeding the amount in dispute.
Six Dispute Resolution Provisions That Went Wrong
The following examples come from contracts brought to my firm. They show what happens when companies sign dispute resolution provisions without understanding how those provisions will work if a real dispute arises.
1. The American Company That Could Not Afford to Arbitrate
An American company sent me a contract containing nearly every problematic provision described above. Its foreign counterparty had breached the agreement, and the company wanted to know whether our international dispute resolution lawyers would take the case. The contract required negotiations, in-person mediation in China, and an arbitration proceeding in Chinese before three arbitrators. The method for selecting arbitrators was unclear. The contract also lacked a provision addressing recovery of the prevailing party's attorneys' fees. I explained that before we could pursue the underlying claim, we would have to deal with the contractual procedures governing negotiations and mediation, the selection of arbitrators, and potentially disputes over how the arbitration was to be conducted. The company considered the costs and risks and decided against proceeding. Whatever substantive legal rights it had were of little practical value because enforcing those rights was too expensive.
2. The Vietnam Contract That Made Settlement the Only Sensible Option
Another American company came to us with a contract containing an astonishingly complicated dispute resolution procedure. The agreement required the parties to meet twice in Vietnam, with the meetings at least 60 days apart. If they failed to resolve their dispute, they had to submit it to a Vietnamese mediator at least 60 days later. If mediation failed, arbitration would follow, with the American company responsible for the full cost of arbitration. The contract also purported to allow review of the arbitration award by a Vietnamese court, which raised additional questions about the procedure and applicable law.
To make matters worse, the agreement did not specify the language of the negotiations, mediation, arbitration, or court proceedings. Our lawyers believed the American company would likely face proceedings in Vietnamese. The American company ultimately accepted a low settlement offer at its first meeting with the Vietnamese company. The settlement was unattractive, but pursuing the claim under the contract's dispute resolution provisions looked worse. The foreign company had an enormous procedural advantage before the parties ever reached the merits of their dispute.
3. The Arbitration Institution That Did Not Exist
A longtime client of ours came to us with a contract requiring arbitration before the "Arbitration Institute of the Geneva Chamber of Commerce." The client had taken a contract our firm had drafted years earlier, changed a few provisions, and reused it for another transaction. The original agreement called for arbitration before the Arbitration Institute of the Stockholm Chamber of Commerce, a forum commonly used for disputes involving Russian and American companies at that time. When our client negotiated a new agreement with a Spanish company, the Spanish company objected to Stockholm. Our client replaced "Stockholm" with "Geneva" and signed the contract.
The problem was that the named Geneva arbitration institution did not exist. When the dispute arose, our arbitration lawyers had to research how to commence proceedings before an institution that could not administer them. We ultimately pursued arbitration in Geneva under a Swiss arbitration framework, arguing that this was consistent with the parties' actual intentions. The opposing party challenged the forum. After extensive briefing, substantial legal expenses, and considerable delay, we prevailed on the jurisdictional issue. Our client eventually settled for less than it otherwise would have accepted because of the remaining risk that an arbitration award would face an enforcement challenge based on the tribunal's jurisdiction. Today, the Swiss Arbitration Centre publishes model clauses that parties can use to identify the institution and applicable rules correctly. This is precisely the kind of resource lawyers should consult instead of improvising institutional names.
4. The Tokyo Court That Was Not There
An American company discovered that its Chinese manufacturer was producing and selling the newest version of the American company's product. The underlying contract already created a serious problem because it gave the Chinese manufacturer ownership rights in future product iterations. The dispute resolution clause made things worse. It required disputes to be resolved in "Tokyo Superior Court." There is no Japanese court by that name.
The parties had also failed to consider whether a Japanese court was a suitable forum for their dispute or how a judgment from that court would be enforced against the Chinese company. The agreement left the American company fighting over both its substantive rights and the forum in which those rights could be enforced.
5. The Toronto Court Provision
A company approached us with a contract requiring disputes between its American business and a Chinese counterparty to be resolved in Toronto courts. The underlying transaction had no meaningful connection to Canada. When I asked why the company had chosen Toronto, the client explained that it had read one of my China Law Blog posts discussing the advantages of arbitration in Canada. The client had confused Canadian arbitration with Canadian court litigation.
Arbitration parties can often choose a neutral seat in a country unrelated to their transaction. Court jurisdiction is a different matter. Parties cannot assume that naming a particular court gives that court jurisdiction under all applicable laws, or that any resulting judgment will be enforceable where the defendant's assets are located. The enforceability of a foreign choice-of-court provision depends on the relevant jurisdiction and circumstances. In this case, the company had chosen Toronto without analyzing either jurisdiction or the practical path to enforcement against its Chinese counterparty.
6. Arbitration in South Carolina, in Chinese, Under British Law
A British company sent us an agreement requiring arbitration in South Carolina, conducted in Chinese, and governed by British law. I am still not sure how the parties arrived at that combination. The clause created obvious potential costs and complications. The proceedings would be conducted in a language that was inconvenient for our client, in a location that offered no apparent advantage, under a governing-law provision that itself lacked precision. Fortunately, the contract had not yet been signed.
One of our international transactional lawyers revised the dispute resolution provision to provide for arbitration in London, conducted in English, under the appropriate law of England and Wales. The client avoided a potentially expensive procedural problem before it became one.
How to Draft an International Arbitration Clause That Works
The starting point is to decide what you want to accomplish and where any eventual award will need to be enforced. Then use the model clause published by the arbitration institution you intend to use. For example, the International Chamber of Commerce and the International Centre for Dispute Resolution publish model arbitration clauses. These model clauses provide a sound starting point. They still need to be reviewed and adapted for the actual transaction, the governing law, the seat of arbitration, and the countries where enforcement may be necessary.
1. Clearly Identify the Arbitration Institution and Rules
State whether the dispute will be resolved by arbitration and identify the institution that will administer it. Use the institution's correct legal name and specify the applicable rules. Simply writing "arbitration in Singapore" or "arbitration in Geneva" is asking for trouble. It leaves important procedural issues unresolved, even if the clause ultimately proves enforceable. The institution matters because different institutions have different procedures, costs, and provisions governing arbitrator selection, expedited proceedings, and emergency relief.
Some institutions we regularly consider include the International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), China International Economic and Trade Arbitration Commission (CIETAC), Hong Kong International Arbitration Centre (HKIAC), and International Centre for Dispute Resolution (ICDR).
2. Specify the Seat, Language, and Governing Law
The legal seat of arbitration is particularly important. It ordinarily determines the procedural arbitration law and the courts with supervisory authority over the arbitration. The legal seat is not necessarily where hearings must physically occur. Parties can agree to hold hearings elsewhere, subject to the applicable rules and law. The contract also should clearly identify the governing substantive law. Choosing Singapore as the seat of arbitration, for example, does not automatically mean Singapore law governs the underlying contract.
Depending on the transaction, the parties also should expressly address the law governing the arbitration agreement itself. The language of the proceedings should never be left to chance. If the contract does not specify it, the applicable rules or tribunal may determine the language, which can produce a result neither party anticipated. We regularly draft manufacturing agreements where the appropriate choice is Chinese law, Chinese courts, and a Chinese-language contract. Our article, Why Your China Manufacturing Agreements Should Almost Always Be in Chinese, explains the reasoning.
3. Think Carefully About the Number and Selection of Arbitrators
For smaller disputes, a single arbitrator generally makes more economic sense than a three-member tribunal. Three arbitrators mean additional fees, scheduling difficulties, and potentially more complicated proceedings. There are circumstances where a three-member panel is justified, particularly in high-value or technically complicated cases, but it should be a deliberate choice. The clause should also provide a workable appointment procedure, either directly or through the chosen institution's rules. Parties should consider whether they need arbitrators with specialized industry, technical, or legal knowledge.
4. Do Not Make Negotiation and Mediation Unnecessarily Complicated
I generally advise against lengthy mandatory negotiation or mediation requirements unless the particular transaction provides a good reason for them. There is nothing wrong with mediation. I am a strong believer in resolving business disputes without litigation or arbitration whenever a reasonable settlement is available. But if two parties want to negotiate or mediate after a dispute arises, they can agree to do so then.
A contract that forces them into 180 days of negotiations followed by another 90 days of mediation can give a breaching party plenty of time to delay the case while continuing the conduct that caused the dispute. If the parties want mandatory preliminary settlement procedures, those procedures should have clearly defined starting points and short deadlines. The contract should identify how mediation begins and what happens if one party refuses to participate. It should also address whether urgent interim relief remains available before those procedures are completed.
5. Address Attorneys' Fees and Arbitration Costs
A dispute resolution provision should address the allocation of arbitration costs and, where appropriate, attorneys' fees. Do not assume that the prevailing party will recover its legal fees. That depends on the applicable law, arbitration rules, and contract language. A well-drafted clause can address the tribunal's authority to allocate costs and attorneys' fees, subject to applicable law. But giving the arbitrator discretion is not the same as guaranteeing that the winning party will recover everything it spent. For lower-value transactions, the parties should consider streamlined arbitration procedures, a sole arbitrator, and practical limits on unnecessary proceedings.
6. Decide How Much Discovery You Really Need
One advantage of arbitration is that the parties can often establish procedures that avoid the extensive discovery common in American litigation. An in-house lawyer at an international automotive company once told me that some of the company's arbitration agreements failed to limit discovery. As a result, the company sometimes found itself spending extraordinary amounts on complicated arbitration proceedings that looked remarkably like American litigation. This is an issue international contract lawyers too often overlook.
Depending on the governing arbitration rules and applicable law, parties can address the scope of document production, the number of depositions or witness examinations, deadlines for exchanging evidence, and other procedural matters. A lawyer drafting an arbitration clause should speak with a lawyer who actually handles arbitrations before deciding what discovery provisions to include. There is little benefit in choosing arbitration to avoid litigation costs if the agreement recreates the most expensive parts of litigation.
7. Do Not Assume Your Arbitration Is Confidential
Many lawyers assume that arbitration proceedings are always confidential. They are not. Our arbitration lawyers have handled matters in jurisdictions where confidentiality was not automatic. Unless the parties agreed otherwise, they did not necessarily have the privacy protections they expected. This issue came up recently in a discussion I had with a lawyer-client about an international company whose competitive advantage depended on a unique product that was not protected by a patent. For that business, protecting confidential product information was a major consideration in choosing arbitration rather than litigation.
If confidentiality matters, the contract should address it expressly. The provision should work with the applicable arbitration rules and law and account for necessary disclosures to legal advisers, insurers, regulators, and courts involved in interim relief or enforcement. Even a well-drafted confidentiality provision cannot guarantee that every aspect of an arbitration will remain private. Court proceedings relating to an award can become public, and mandatory disclosure rules can override contractual confidentiality obligations.
8. Plan for Interim Relief and Third-Party Disputes
Before choosing arbitration, consider whether your company will need an injunction, an asset freeze, or an evidence preservation order before the arbitration concludes. The clause should preserve whatever interim relief is legally available and establish a practical way to obtain it. The availability of court assistance depends on the jurisdiction, so a generic provision allowing applications to "any competent court" should not be treated as sufficient without further analysis. Companies also need to consider whether related contracts and third parties will become part of the dispute.
If a manufacturing transaction involves a supplier, its parent company, a tooling owner, and a subcontractor, a dispute involving all four can become much more complicated if they are bound by inconsistent dispute resolution clauses. Arbitration agreements ordinarily bind the parties to them, subject to exceptions under applicable law. Joinder and consolidation are governed by the relevant agreements, institutional rules, and law. When several related contracts are involved, we try to coordinate their dispute resolution provisions so that one commercial dispute does not unnecessarily become four separate proceedings.
9. Understand What Finality Really Means
An arbitration award is generally intended to be final and binding. That is one of arbitration's advantages. It also means that a party that loses because the arbitrator misunderstands the facts or applies the law incorrectly generally has limited opportunities to challenge the result. A contract can state that an award is final and binding, but it cannot necessarily eliminate the judicial review available under mandatory arbitration law.
I would not use a provision declaring that an award is "not subject to review by any court in any jurisdiction" and assume that statement settles the issue. Courts retain whatever authority the applicable law gives them, including authority to consider certain challenges to an award or defenses to enforcement. Use the selected institution's model language and understand the applicable limits on review before attempting to modify them.
Arbitration in China: What About Chinese State-Owned Enterprises?
One of my earlier discussions about arbitration clauses led to a conversation with a lawyer friend who specializes in international arbitration. He wanted to know about our experiences dealing with Chinese state-owned enterprises, or SOEs, which often insist that disputes be arbitrated in China. Many of our clients are uncomfortable agreeing to arbitration in China. Some assume they cannot receive a fair hearing because their counterparty is Chinese, particularly if the counterparty is state-owned. Our experience has been more nuanced.
We have handled arbitrations in China where the proceedings were conducted competently and fairly. As with arbitration elsewhere, the institution, tribunal composition, applicable rules, evidence, and nature of the dispute all matter. When a Chinese company insists on arbitration in China, we do not automatically reject the proposal. Instead, we look for ways to structure the process to protect our client. For years, our China lawyers frequently proposed a particular Chinese law professor who taught at a Canadian law school and was well known to members of our firm. He was exceptionally knowledgeable about Chinese law and international arbitration. We often succeeded in getting him accepted as the sole arbitrator or as the chair of a three-member tribunal, sometimes with an agreed role in selecting the other arbitrators, where the applicable appointment rules permitted it. Having someone of his competence and independence involved gave our clients considerably more confidence in the process. That professor has since retired, but we continue to look for similar opportunities when negotiating arbitration clauses.
The lesson is that agreeing to arbitration in China does not require surrendering control over every aspect of the proceedings. The selection of the institution, procedural rules, and arbitrators can make an enormous difference.
Sometimes the Most Favorable Dispute Resolution Clause Is Not the Easiest One
Most of this article has focused on making dispute resolution provisions clearer, faster, and less expensive to use. But international contracts are negotiated agreements, and the parties do not always have identical interests. A company that is more likely to defend a claim than bring one may have different priorities from a company that expects to be the claimant. One party may value confidentiality while the other sees an advantage in public proceedings. A company with substantial resources may be more comfortable with an expensive arbitration process than a smaller counterparty. These considerations can affect the forum and procedures a party seeks during negotiations.
There are limits, of course. A provision designed to create obstacles can also create problems for the party that insisted on it, and some provisions will not be enforceable. Before proposing a complicated process as a negotiating tactic, the client needs to understand what happens if it is the party that eventually needs to bring a claim. I am sometimes surprised by the forums we can negotiate with foreign counterparties. For transactions involving West Coast American clients, we have had considerable success persuading Asian companies to accept arbitration in Vancouver. I suspect part of the reason is that they expect us to insist on New York. That sort of flexibility can be valuable. What matters is understanding why a particular forum helps your client and what you are giving up to obtain it.
Write the Dispute Resolution Clause Before There Is a Dispute
The worst time to discover a problem with an arbitration clause is after the other side has breached the agreement. By then, the opposing party has little incentive to cooperate in correcting the provision, particularly if the defect gives it an advantage. This is why our international transactional lawyers regularly consult our international dispute resolution lawyers before finalizing important contracts. The lawyer drafting the contract understands the commercial deal. The litigator understands what happens when the relationship breaks down and somebody actually needs to enforce the agreement. Both perspectives matter.
I have seen too many businesses discover that they had a strong breach of contract claim but no economically sensible way to pursue it. They thought they had protected themselves because the agreement was lengthy, detailed, and prepared by a lawyer. Then they discovered what their dispute resolution provision actually required. Read that provision before you sign. Better still, have someone who has handled international disputes review it. A few minutes spent thinking through what happens when the other party breaches can save years of litigation, arbitration, and expense.
