Introduction to International Commercial Disputes
Definition of an international commercial dispute
An international commercial dispute arises when two or more parties from different countries are in conflict over a contract or transaction of a commercial nature. These disputes may concern the sale of goods and services, distribution agreements, intellectual property protection, international payments, or e-commerce.
International negotiation is complex, as it involves cultural, linguistic, and legal aspects that influence one another. In a constantly evolving global market, legal aspects are crucial to the success or failure of a business agreement. In addition to defining the economic terms of the contract, the parties must also agree on the applicable law, the structure of the agreement, which court to turn to in case of disputes, or whether to use mediation or arbitration.
At the international level, there are few uniform legal instruments available to the parties, and these apply only to specific areas. For example, the United Nations Convention contains rules on Contracts for the International Sale of Goods (CISG); the Incoterms rules from the International Chamber of Commerce (ICC) are widely used in transportation; and the New York Convention on Arbitration defines a common framework for this method of dispute resolution.
Types of International Commercial Disputes
The main types of disputes that may arise between parties involved in international commercial transactions are outlined below, along with concrete examples.
International Contracts and Non-Compliance with Clauses
International contracts govern commercial relationships between companies from different countries. Disputes may arise when one party fails to fulfill its contractual obligations, such as failure to pay, delivery of non-conforming goods or services, or breach of exclusivity clauses.
Example: An Italian company signs a contract with a Chinese supplier for the production of electronic components, but the supplier fails to meet delivery deadlines or provides defective products. The Italian company may have to resort to international arbitration, which involves high costs, to obtain compensation.
Conflicts over Intellectual Property and Licensing
Disputes over intellectual property (IP) are common in international trade, especially in sectors like technology, pharmaceuticals, and entertainment. These conflicts may concern the infringement of patents, trademarks, copyrights, or trade secrets, as well as disputes over the validity and enforcement of usage licenses. IP protection varies from country to country, making the choice of jurisdiction and dispute resolution method crucial.
Example: An Italian software company discovers that its Indian partner has copied its source code and sold it as its own. The Italian company could initiate legal action for copyright infringement or attempt to resolve the issue through an out-of-court settlement.
Disagreements over Quality or Delivery of Goods
Companies operating on an international scale often face issues related to the quality of goods received or delays in delivery. Such disputes may result from differences in production standards, logistical problems, or misunderstandings in contractual documentation.
Example: A major American retail chain orders a batch of clothing from a European manufacturer that uses a subcontractor in Bangladesh. Upon delivery, the American client discovers that the fabrics used do not meet the agreed-upon standards. The American company may request a refund or replacement of the goods from the European supplier.
Issues Related to Payments and Financial Transactions
Financial disputes are among the most frequent causes of international conflicts. They can involve non-payment of invoices, disagreements over payment terms, financial fraud, or the enforcement of international sanctions that block transactions.
Example: A company exports a machinery to a business in the Middle East, but the payment is blocked due to banking restrictions imposed by international sanctions. In this case, both parties may have to negotiate new terms or seek legal solutions to unlock the payment.
These types of disputes highlight the complexity of international commercial relationships and the importance of adopting preventive strategies, such as drafting clear and detailed contracts, using secure payment tools, and choosing effective dispute resolution mechanisms.
Common Causes of Disputes
Cultural and Legal Differences Between Countries
No international negotiator can ignore the importance of knowing the counterpart, which means both obtaining the necessary commercial and financial information and understanding the way of Doing Business of the Counterparty. Cultural differences exist and can influence negotiations.
There is also a fundamental distinction between legal systems that affects both the way negotiators think and the substance of agreements.
The two main legal traditions are civil law, widespread in continental Europe and many other regions, and common law, prevalent in Anglo-Saxon countries such as the United States, the United Kingdom, and Canada.
In the common law system, judicial precedents make the law. Since there are no codified rules, except in certain areas, contract drafting is extremely detailed in order to anticipate every possible scenario.
In civil law countries, on the other hand, the existence of codes and written norms in all fields allows for more concise contract drafting.
These differences influence negotiations, as a U.S. partner might prefer explicit contractual terms, while an Italian or French partner might rely on pre-existing legal definitions and norms.
Unclear or Inadequate Contractual Clauses
When companies negotiate international agreements, they must take into account the legal aspects that are present in every phase of an international contract, from the initial letter of intent to the final agreement.
Entrepreneurs tend to focus on financial aspects, neglecting legal clauses, such as those on liabilities, choice of forum, or applicable law, which can nonetheless have a significant impact on the economics of the contract, especially in case of disputes.
Ignoring these aspects can lead to financial losses, legal battles, reputational damage, or missed business opportunities.
Lack of Trust Between the Parties Involved
Especially in international exchanges, if something goes wrong, trust in the counterparty tends to be lost very quickly. Communication weakens, and constructive dialogue—also due to distance and language barriers—becomes much more difficult.
Contrary to common belief, serious international legal professionals are trained in negotiation and can both facilitate dialogue and help the client avoid approach errors that can lead to litigation detrimental to the client.
Tools and Solutions for Addressing Disputes
When writing an international contract, it is essential to establish in advance: the applicable law and the competent forum.
In other words, it is necessary to decide which legal system will govern the contract and which court—or arbitral institution—will have the power to resolve any disputes.
Applicable Law
International commercial transactions require a comparison between the laws applicable to contracts. To avoid contradictions between the laws of different jurisdictions, the parties indicate in a specific clause the law applicable to the contract. The main options for choosing the applicable law include:
• Law of one’s own country
• Law of the counterparty’s country
• Law of a third country
• UNIDROIT Principles and/or “lex mercatoria”
In many cases, the parties opt for the laws of third countries, such as Switzerland, based on the perception of greater neutrality, without verifying whether such a choice is appropriate to the concrete situation.
Very often, to avoid discussions, the parties choose not to indicate any law at all, ignoring the uncertainty this may cause in the execution of the contract and the risks they face in the event of a dispute.
In some cases, international conventions apply. One of the most important legislative instruments is the United Nations Convention on Contracts for the International Sale of Goods (CISG), adopted in 1980.
The CISG provides a uniform framework for international trade, reducing legal barriers between member states. However, its application is limited to contracts for the sale of movable goods and it can be applied if the contract refers to it, or if the governing law of the contract is that of a member state, or if both parties are based in member states of the convention.
In addition to legislative instruments, there are soft law instruments that contribute to the harmonization of international commercial law, such as the UNIDROIT Principles of International Commercial Contracts, which provide a contractual regime that parties may freely choose. However, their application depends on the will of the parties, who must explicitly refer to these principles in their contracts.
In the absence of an explicit choice of applicable law, private international law of the country of the court seized comes into play. In the case of Italy, Law 218/1995 sets criteria to determine the applicable law but can leave a certain margin of discretion to the interpreter, introducing possible uncertainties.
Competent Forum
Likewise, the clause on the competent forum determines which court or arbitral institution will handle any disputes arising from the international commercial contract. Here, the options include:
- Ordinary justice (state courts)
- ADR (Alternative Dispute Resolution), such as arbitration (private judges chosen by the parties) or mediation and conciliation, which help the parties reach an agreement without an imposed decision.
As mentioned in the previous article, although ordinary justice is the most traditional and well-known method of dispute resolution, it is not always the most suitable choice due to the long duration of proceedings, the complexity of procedures and strict deadlines, as well as risks related to language and reputation.
Indeed, arbitration is an increasingly used solution because it is faster, more confidential, and more flexible compared to state courts. The parties can choose arbitrators with specific expertise, who issue a binding decision called an “award.” However, arbitration is expensive, so it is not suitable for all disputes; in addition, the possibility to appeal the decision is limited.
To use arbitration, it must be agreed upon in the contract through an arbitration clause, or separately through an arbitration agreement. The choice of arbitrators is crucial: they must be competent, independent, and experienced with respect to the nature of the dispute. International conventions, such as the 1958 New York Convention, ensure that arbitral awards are recognized in many countries, making arbitration an effective solution for international disputes.
Mediation is another method of dispute resolution that involves a neutral third party, called a mediator, who helps the conflicting parties negotiate a voluntary and mutually agreed solution without imposing decisions. This process is voluntary and flexible, allowing the parties to maintain control over the outcome and to find creative solutions. It is also more cost-effective than litigation or arbitration, as it requires less time and fewer resources. Moreover, it encourages communication and cooperation between the parties, which is particularly useful in cases where maintaining the relationship is important. Another significant advantage is confidentiality, which protects the personal or professional reputation of the parties involved. Following Directive 2008/52/EC of the European Parliament and Council, agreements reached through mediation have gained greater enforceability within the EU, simplifying their application across national borders.
However, the mediation process also has its downsides. Since it is not binding, it may prove ineffective if the parties fail to reach an agreement, leading to a waste of time and money. Moreover, in situations with a strong power imbalance, one party may overly influence the other, resulting in unfair outcomes.
Best Practices to Prevent Disputes
To effectively prevent disputes in international contracts, it is essential to adopt certain best practices:
Drafting clear and comprehensive contracts
Precisely define the rights and obligations of the parties, specifying payment terms, delivery methods, liabilities, and penalties. It is crucial to indicate the applicable law and the competent jurisdiction, using clear legal terminology to avoid ambiguities.
Including dispute resolution clauses
The dispute resolution clause should be negotiated based on the nature of the contract. In some cases, it may be useful to include multi-step clauses or clauses requiring mediation before legal action can be taken. When the stakes are high, it may be advisable to include arbitration clauses in the contracts. If fast enforcement of payment is important, it can be helpful to insert asymmetric forum selection clauses, which provide that one party may bring proceedings before only one judicial authority, while the other party (typically the creditor) has the option to turn to multiple alternative forums. This type of clause was upheld as valid by the Court of Justice of the EU, on 27 February 2025, Case C-537/23, Società Italiana Lastre, based on the principle of party autonomy established in Article 25 of the EU Regulation 1215/2018, as an imbalance between the parties is the result of an agreement voluntarily accepted.
Implementation of risk management strategies
Before entering into an international contract, it is useful to conduct thorough due diligence on the counterparty to assess their reliability, include force majeure clauses to address unforeseen events, and establish effective communication channels to prevent misunderstandings. Monitoring the fulfillment of contractual obligations and training staff on contract management and alternative dispute resolution further contribute to minimizing conflicts.
By adopting these measures, businesses can significantly reduce the risk of litigation, protect their interests, and foster strong and lasting commercial relationships.
Conclusion
In conclusion, international commercial disputes represent a complex challenge for companies operating in a globalized market, due to cultural, legal, and linguistic differences that affect negotiations and contracts. However, it is possible to successfully face these challenges by adopting preventive practices, such as drafting clear contracts, including arbitration or mediation clauses, and making an informed choice of applicable law. Furthermore, maintaining trust and clear communication with the other party will help prevent disputes. LEX IBC, with its extensive experience in international contracts and commercial litigation, is able to assist companies at every stage of the process — whether at the beginning of negotiations, during, or after the execution of the contract — to help them overcome difficulties.
Mariangela Balestra and Marie Vanswevelt
Lex IBC – 2025, All Rights Reserved. No text and data mining.