Q: A large corporate account that we handle throughout the U.S. has asked us to find and work with travel agencies in three other countries where the account has operations. We would be the prime contractor worldwide, and the agencies in the other countries would be our subcontractors. Through our consortium, we have found agencies that have agreed in principle to come on board. We sent them a draft of a subcontract that stated that the contract would be governed by the laws of our state and that litigation must be filed exclusively in courts in our state. The other agencies have all objected to these clauses and have proposed that the laws and courts of their home countries apply exclusively. How do we resolve this standoff?
A: Here's the first approach that I would recommend: Your prime contract probably designates the state the account's headquarters is in as the jurisdiction. You can propose that the relevant portion of the prime contract be incorporated by reference into the subcontract, and you may be able to have the account insist on that approach.
If the foreign agency still objects, you should consider whether litigating in that country is truly disadvantageous, and if it isn't, you can offer to concede the point in return for some other contract point. You can probably get fair outcomes in many countries' courts, although the courts of other countries are notoriously slow and corrupt.
Alternatively, you can propose that disputes be settled exclusively by arbitration under the rules of an organization specializing in international commercial disputes. One or more arbitrators will make a decision that can be enforced in the courts of either country.
There are half a dozen well-known organizations that administer international arbitration, and the parties should be able to agree on one of them and specify their choice in the subcontract. Here are the most well-known: the International Court of Arbitration (ICC) in Paris; the London Court of International Arbitration (LCIA); the International Center for Dispute Resolution (ICDR) of the American Arbitration Association; the Hong Kong International Arbitration Centre (HKIAC); and the Singapore International Arbitration Centre (SIAC).
I could not find any practical guidance on which of these is best for which disputes, but you can find good comparisons of many aspects of each one by Googling "compare ICC, LCIA, ICDR, HKIAC and SIAC."
You can even provide for unsupervised arbitration under U.N. rules if the parties themselves are capable of agreeing on an arbitrator and self-administering the arbitration. This approach can save time and money, at least in theory, if the parties don't need supervision.
Regardless of the forum chosen, total costs can run hundreds of thousands of dollars in administrative, arbitrator and attorney's fees, all of which can easily exceed the amount in dispute, so it is certainly better to avoid both arbitration and court litigation. Many experts recommend that contracts provide that the top executives of both companies must meet at a specified time and place and make a good-faith attempt to resolve any dispute before one party files for arbitration.