Suppose your California company sues a foreign customer in Los Angeles, litigates for two years, and obtains a judgment — and then discovers the judgment is nearly worthless in the customer's home country. This scenario plays out constantly, and it is the single best argument for arbitration clauses in cross-border contracts. Here is why arbitration usually beats litigation internationally, and how to draft a clause that actually works.
The enforcement problem with court judgments
A judgment is only as good as your ability to collect on it where the defendant's assets sit. There is no global treaty in force for the United States that obligates foreign courts to enforce U.S. court judgments. Enforcement abroad depends on each country's domestic law and notions of reciprocity — and many important trading partners enforce U.S. judgments reluctantly, slowly, or effectively not at all. Foreign defendants know this. A counterparty with no U.S. assets can sometimes treat a U.S. lawsuit as a nuisance rather than a threat.
Why arbitral awards travel better
Arbitration flips the enforcement picture. Under the New York Convention (the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards), more than 170 countries — including virtually every significant trading nation — have agreed to recognize and enforce foreign arbitral awards, subject only to a short list of narrow defenses such as invalid agreement, lack of due process, or violation of public policy. In the United States, the Convention is implemented through Chapter 2 of the Federal Arbitration Act (9 U.S.C. § 201 et seq.), and courts enforce both the agreements and the resulting awards.
Beyond enforceability, international arbitration offers advantages that matter in cross-border disputes:
- Neutrality. Neither party litigates in the other's home courts, before the other's home-country judges, in the other's language.
- Expertise. Parties can select arbitrators with industry or technical background.
- Confidentiality. Proceedings are generally private, unlike U.S. court dockets.
- Finality. Grounds for challenging an award are narrow — which cuts both ways, but can end disputes faster.
The trade-offs are real too: limited discovery, limited appellate review, and institutional fees. For most cross-border commercial relationships, the enforcement advantage outweighs them decisively.
The five decisions every arbitration clause must make
A bare "disputes shall be arbitrated" sentence invites satellite litigation about what the parties meant. A working clause makes five choices explicitly:
- Institution and rules. Name an administering institution — ICC, the AAA's International Centre for Dispute Resolution (ICDR), JAMS International, SIAC (Singapore), HKIAC (Hong Kong), or LCIA (London) — and adopt its rules. Institutional model clauses are a reliable starting point; freestyle drafting is where clauses break.
- Seat. The legal seat determines which courts supervise the arbitration and where the award is "made" for Convention purposes. Choose a seat in a New York Convention country with arbitration-friendly courts. Los Angeles, New York, London, Singapore, and Geneva are common choices; a California company can often negotiate a Los Angeles seat with a neutral institution as the compromise.
- Number of arbitrators. One arbitrator is faster and cheaper; three suits high-value disputes. Many clauses set one arbitrator below a dollar threshold and three above it.
- Language. Specify it. Translating a proceeding can substantially increase cost and time.
- Governing law. The clause should sit alongside an explicit choice of substantive law — and remember that the arbitration agreement itself can be governed by a different law than the contract, which is worth stating to avoid a well-known trap in international practice.
Drafting details that earn their keep
- Interim relief carve-out. Preserve each party's right to seek injunctions or attachments from courts — critical for IP and confidentiality breaches where speed matters.
- Fee and cost allocation. Address whether the prevailing party recovers fees; default rules vary by institution and seat.
- Consolidation and joinder. In multi-contract deals (supply plus license plus services), make sure related disputes can be heard together.
- Award currency and interest. Small words, large consequences when exchange rates move during a two-year dispute.
- Beware pathological clauses. Naming a nonexistent institution, combining contradictory rules, or making arbitration "optional" for one party can render the clause unenforceable in some jurisdictions.
When arbitration is not the answer
Arbitration is not automatic. If your counterparty has substantial U.S. assets, U.S. litigation may be simpler and preserves broad discovery. Some disputes — certain IP validity questions, for instance — are not arbitrable everywhere. And consumer or employment arbitration raises separate enforceability rules, especially in California. The point is to choose the mechanism deliberately as part of your international business strategy, with drafting and disputes counsel — including business litigation experience — informing what the clause will look like under pressure.
Talk to a California business attorney
If your company signs contracts with foreign customers, suppliers, or partners, a review of your dispute resolution clauses is one of the highest-leverage fixes available. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
